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A connection between different parts of the economy. Spill-overs may be pecuniary or non-pecuniary. A pecuniary spill-over occurs, for example, when changes in one industry affect factor supplies to another: if a new factory bids up the wages of unskilled labour so that local people find cleaners or gardeners more expensive, this is a pecuniary spill-over. Pecuniary spill-overs produce their effects through markets. A non-pecuniary spill-over occurs when one industry inflicts a negative externality on another: there is usually no market through which they can be paid not to do so. Non-pecuniary spill-overs provide a prima facie case for government intervention, by regulation or taxation, whereas pecuniary spill-overs do not, except on grounds of income distribution.

Subjects: Economics.

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