Balancing regional development: cross-subsidization promotes equality

Abstract

There has been a rapid rise in the regional disparities in Finland during the 1990s. The study investigates the regional cross-subsidization of some public utilities and large companies, which leads to a decline in the regional disparities of user costs. In the case of the regional cross-subsidization, the higher transportation costs in the periphery of the country are not fully reflected in the level of tariffs in those areas. There seems to be some evidence for the view that the regional cross-subsidization can exists even in the unregulated businesses. The effects of the regional cross-subsidization are investigated by applying a version of the model by Krugman based on ”new economic geography”.

• ISSN: 1457-2923
• ISBN: 952-5071-68-5
• Publication in PDF-format