The work presented in the dissertation is a first step on the road to constructing applied regional general equilibrium models. These models could include cluster effects, and could be used to analyze regional policy initiatives, specifically focusing on business location and regional welfare effects. A concrete model is used to analyze the effects on business localization of the countervailing reform that was implemented in 2007. The reform meant that money was moved from eastern to western Denmark. Simulations show that Eastern Denmark reduces the public sector, which frees up resources so that the private sector can expand.