Place-Based Policies and Inequality Within Regions

Abstract

What are the distributional effects of placed-based policies? Drawing on household data from 2.4 million survey respondents in the European Union (EU), we show that income inequality within European regions is substantial, has widened since the 1990s and contributes more to overall inequality than cross-regional inequality. Using regression discontinuity and difference-in-differences designs, we find that the world's largest place-based policy, the EU's Cohesion Policy, increases incomes for affluent households but barely affects low-income households in supported regions. Evidence on mechanisms demonstrates that place-based funds exacerbate intra-regional inequality by primarily boosting labor incomes for the highly skilled.