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Policy spillovers in a regional target-setting regime

Learmonth, D. and Swales, J.K. (2005) Policy spillovers in a regional target-setting regime. Environment and Planning A. ISSN 0308-518X

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The present UK government has introduced a decentralised, target-driven framework for the delivery of regional policy in England. This paper analyses the operation of such a regime when there are spatial spillovers about which the government is uninformed. It stresses the simple idea that spillovers in such a setting normally lead to a sub-optimal allocation of policy expenditures. A key result is that the existence of negative spillovers on some policies generates expenditure switching towards those policies. The extent of the expenditure switching is related to a number of factors: the size of the spillovers; the initial policy weights in the government's welfare function; the number of agencies; the extent of their knowledge of spillovers; and their degree of collusion. Such expenditure switching is generally not welfare maximising.