1An Evaluation of the Distributional Effects of Various Development Programs on Inter-Regional Areas Using CGE

When pursuing economic development, regions are generally faced with two broad choices: targeting a specific industry through the use of tax abatements and other subsidies, or targeting a specific location (ie. an Enterprise Zone) by offering general incentives to any firm willing to locate there. This decision is particularly important when we consider disadvantaged regions attempting economic revitalization, since the path taken may have significant consequences for the region’s income distribution. The welfare of a region’s original residents may be dramatically different between the two options as a result of in-migrants, changing employment, and fluctuating real incomes. Likewise, tax burdens may be shifted between business and residential property owners as a result of the incentive program. Multi-Jurisdictional regions compound the potential effects as the location and type of economic development is likely to spillover and yield differing welfare changes for particular jurisdictions within the region. We examine this situation using a multi-regional CGE model of counties in southern West Virginia, explicitly incorporating distributional considerations into the structural parameters of the model. This model allows us to not only consider original versus new residents, but also the overall change in distributional welfare resulting from various types of economic development programs outlined above. Incorporating distributional equity into the analysis of economic development programs focuses on the outcomes caused by the program rather than the program's procedures and allows evaluations beyond the effects of programs on business growth to effects on local fiscal health and the earnings of the under/unemployed. I