Place‑based Policy, Migration Barriers, and Spatial Inequality

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Updated

06-2025

Abstract

How should governments reduce spatial inequality—by attracting firms to disadvantaged regions or helping people reach thriving ones? This paper studies Vietnam’s implementation of both policies, place-based tax incentives in 2003 and relaxation of the household registration system (Ho Khau) in 2005. I embed these shocks in a dynamic spatial general equilibrium model with firm life cycles and endogenous public services, estimating key elasticities from policy-induced variations. The combined policies raise aggregate welfare by 1.3% and reduce spatial inequality by 0.7%. Migration reform alone reduces spatial inequality three times more than tax incentives. However, the migration policy’s impact depends critically on destination targeting: facilitating migration to the largest cities generates minimal redistribution, while reducing barriers to other destinations cuts spatial inequality by 1.3%, nearly double the combined policy effect. These findings suggest that strategic policy design matters more than choosing between place-based and people-based approaches.

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