Regional policy: what is the most efficient instrument?

Whatever the reasons at work – differences in locational endowments and/or externalities – a unit of capital is expected to be diversely productive according to the region where it is installed. This article determines which and the extent to which a regional policy could be implemented in order to make up for a productivity handicap. The model allows for comparing the efficiency of a productivity-enhancing instrument (a publicly provided input) with that of instruments that affect capital cost (a lower corporate tax rate, an investment tax credit, or a capital subsidy). The approach is illustrated in the contemporaneous context of France.