Stef Proost, Center for Economic Studies FETEW Katholieke Universiteit Leuven, Leuven, Belgium
ALLOCATION OF RAILWAY INVESTMENTS OVER REGIONS IN BELGIUM - IS THERE A COMMON-POOL PROBLEM? (assigned to theme G)

To analyse the regional allocation of rail investments in Belgium we use a political economy model with the regions as the main players and with rail investments considered as local public goods. We compare 4 different allocation mechanisms for regional rail investments. The first is the first-best benchmark. The second is the common-pool allocation, where every region can decide on its own in-vestment level that has to be financed by federal tax revenues. The third mechanism is the present situation, where the costs are born at the federal level as well, but where the allocation of the total in-vestment budget over regions has to respect the 60/40 sharing rule between the two main regions. The fourth mechanism is a new proposal that allows own regional financing for additional investments, on top of federal funding of rail investments with the 60/40 rule. The welfare effects of the four alternatives are compared numerically using illustrative data. One of our main findings is that the fixed 60/40 sharing rule for federal funds does not generate large efficiency losses and that additional regional financing does not create significant welfare gains.

Paper not on CD

Conference organized through conf-vienna (copyright Gunther Maier)

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