Spatial Economics of Income Distribution Across Borders: Drivers of Spatial Inequalities using Microsimulation

Place is important for a household’s standard of living. The pattern of economic activity influences where employment is, whilst population centres, local facilities and house prices influence where people live. There is a great deal of variation across space, as families make choices concerning where they work and where they live. When considering a household’s standard of living as the income remaining once non-discretionary expenditures have been made (e.g., housing, commuting and childcare), there are significant variations across space and within areas. This is an important issue in relation to public policy, in terms of targeting the progressive policy system and mitigating place-based inequalities. Luxembourg and the Greater Region have specific problems, as they are highly dependent on cross-border commuting as part of the dynamic labour market, and this is to a greater extent than any other area in Europe. The factors that shape inequalities in living standards are thus extremely complex involving market incomes, local housing markets, the cost of commuting and public policy. For many, the situation is doubly complicated by interacting with two separate policy environments if they work in one country and live in another.

While there is a good understanding of the factors that influence inequality at national levels, there is a poor understanding regarding the local level and even less in relation to the inequalities that exist in a cross-border region. Building on the foundations that have been developed by members of our research team over 20 years, we will develop a unique analytical infrastructure to assist in understanding the pattern of the spatial inequalities in living standards. The research programme will bring together experience in developing the Europe-wide public policy simulation tool EUROMOD, but will extend it to cover cross-border arrangements and to downscale analysis to the local level. It will utilize a novel framework developed by our team to explore the drivers of income inequality and extended during the COVID crisis to understand its impact on households’ living standards. It will also build on expertise in the team to model commuting and housing costs.

Combining our understanding of all the drivers of spatial inequality at the household level, we will unpick the relative importance of these components in shaping household income and its pattern across space in Luxembourg, as well as in the wider commuting region in neighbouring countries. We will also look at differential incentives that relate to cross-border commuting and migration decisions.

We will share our knowledge with policymakers at local, national and European levels to help in the design of better public policy. This could improve the economic dynamism of the region and mitigate some of the challenges that result from the economic changes that affect different people in different ways across space.