Place‑based Policy, Migration Barriers, and Spatial Inequality
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.