This paper goes back to the effort of successive UK governments throughout the 2010s to ‘rebalance’ the economy across regions and sectors and narrow down regional productivity gaps, which had been perceived as a major cause behind the (very) low productivity growth of the UK. This effort was carried out by a ‘City Deals’ policy, a series of incentive-based devolution deals between central government and local governments (LGs) of low-productivity regions, that was launched in 2012. To narrow down regional productivity gaps, these deals incentivised private investment in growth potential sectors. Concurrently, the post-GFC macroeconomic policy of fiscal austerity and expansionary monetary policy, which sought to boost the UK’s rent-led growth model, pushed private investors away from patient capital investment, especially in underproductive regions. The paper follows the interaction between the UK's GM, its underpinning macroeconomic ideas and the city deal policy and ask how this policy affected the regional distributional patterns that the UK growth model routinely produce. I use this question to better understand the interrelationship between a given growth model and policy efforts to mitigate its distributional outcomes. Building on a constructivist approach to the GM theory I suggest that the interaction between the city deals policy, the macroeconomic framework of the 2010s UK and the rent-led GM pushed the expansion of rent-led investment to areas and regions that were not profitable for rentiers before and increased the dependency of devolved LGs on the interests of rentiers. I also suggest that since the policy did nothing to deal with the macroeconomic sources of rent-led expansion, it ended up increasing regional productivity gaps. To test my suggestions, and since data covering the distributional outcomes of city deals on a country level is not available, I use the rich regional data collected by the LGs of Manchester and Birmingham throughout the 2010s and systematically compare the distributional effects of the city deal in these two city-regions. I follow events up to the year of 2019 to isolate the effects of the policy from those of the pandemic of 2019-2022 and the energy crisis caused by the Ukrainian war. 

The impact of decentralization on spatial inequality remains a central, unresolved puzzle in social policy. A significant body of scholarship, often focused on the US, finds that decentralization deepens disparities in benefit and service provision between regions or localities. However, other evidence, particularly from the Nordic countries, demonstrates that it can coexist with, or even support, universal and egalitarian outcomes. This proposal argues that this contradiction stems from a "black box" in the existing literature, which has failed to systematically model the institutional architecture conditioning the relationship of decentralization to spatial inequality.

The central claim is that spatial disparities are decisively shaped by two institutional architectures: (1) the system-level design of intergovernmental fiscal relations, particularly equalization, which can mitigate or reinforce initial fiscal gaps; and (2) the program-level design of social provisions, specifically whether they are structured as binding entitlements (guaranteeing resources) or discretionary non-entitlements (with capped budgets). Preliminary findings from the PI's studies in Israel support this hypothesis, showing that local agency capacity and rationing practices are driven by both national fiscal rules and the entitlement status of specific programs.

The study will employ a nested comparative case-study design using process-tracing to open the black box. It will compare four countries—Germany (federal, strong equalization), the US (federal, weak), Sweden (unitary, strong), and Israel (unitary, medium)—to isolate the impact of equalization within different state structures. Within each country, a "maximum variation" sample of high- and low-income subnational governments (SNGs) will be selected. The research will proceed in three phases: (1) mapping formal institutional architectures; (2) multi-level interviews and analysis to trace operational realities; and (3) systematic comparison.

This novel design will provide the first in-depth, qualitative evidence of how SNG officials differentially experience and navigate the constraints and opportunities created by varying institutional architectures. By tracing how rules are translated into organizational logics and rationing mechanisms, the study will develop a fine-grained theoretical account of the causal mechanisms producing spatial inequality. It will aim to bridge the gap between comparative welfare state literature (which has generally under-explored subnational variation) and the fiscal federalism literature (which has left the black box of social policy implementation underdeveloped), providing a new framework for understanding the institutional mechanisms that drive or mitigate spatial inequality under decentralization.