Local Ties in Spatial Equilibrium
Abstract: If someone lives in an economically depressed place, they were probably born there. The presence of people with local ties - a preference to live in their birthplace - leads to smaller migration responses. Smaller migration responses to wage declines lead to lower real incomes and make real incomes more sensitive to subsequent demand shocks, a form of hysteresis. Local ties can persist for generations. Place-based policies, like tax subsidies, targeting depressed places cause smaller distortions since few people want to move to depressed places. Place-based policies targeting productive places increase aggregate productivity, since they lead to more migration.
File(s): File format is application/pdf https://www.federalreserve.gov/econres/feds/files/2019080pap.pdf
Part of Series: Finance and Economics Discussion Series
Publication Date: 2019-11-18