Helping the Left Behind? Place-Based Policies and Intra-Regional Inequality

Against the backdrop of rising inequality across regions, place-based policies have become an increasingly popular tool to support “left-behind”' regions. While existing research provides evidence for average growth effect of such policies, little is known about their distributional effects. This is important because, as the paper presented in this ZEW Research Seminar shows, income inequality within such regions is substantial. To address this issue, the authors compile a new panel dataset on income inequality across and within European regions based on household data from more than 2.4 million respondents of national surveys. The data covers a maximum of 231 European subnational regions in the 1989-2017 period. They then study the distributional effects of the world’s most voluminous placed-based policy, the EU Cohesion Policy, on household incomes. For causal identification the paper leverages a discontinuity in disbursements that results from EU eligibility criteria. The authors find a substantial, positive effect of EU funds on household incomes that is largest for a region’s relatively poor. These results are driven by positive employment effects and rising wages in multiple sectors. In sum, the results indicate that place-based policies can reduce inequality both across and within regions and can lift the incomes of the “left behind”.