Regions within the European Union differ substantially not only

with respect to per capita GDP, but also with respect to income inequality

within the regions. This paper studies the effects of different

types of technology-oriented cohesion policies, aiming at the reduction

of regional differences, on the convergence of regions and the dynamics

of income inequality within regions. In particular, policies are

analyzed using a two-region agent-based macroeconomic model – the

Eurace@Unibi model – where firms in the lagging region receive subsidies

for investment in physical capital. It is demonstrated that the

short-, medium- and long-term effects of the policies on per-capita

output and between as well as within regional inequality differ substantially

depending on how successful the policy is in incentivizing

firms to choose best available capital vintages and on how flexible labor

markets are in the targeted region.