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Incidence of an outsourcing tax on intermediate inputs

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Author Info

  • Subhayu Bandyopadhyay

    ()
    (Federal Reserve Bank of St. Louis, and IZA, Bonn)

  • Sugata Marjit

    ()
    (Centre for Studies in Social Sciences, Calcutta)

  • Vivekananda Mukherjee

    ()
    (Jadavpur University, Calcutta)

Abstract

The paper uses a Hecksher-Ohlin-Samuelson type general equilibrium framework to consider the incidence of an outsourcing tax on an economy in which the production of a specific intermediate input has been fragmented and outsourced. If the outsourced sector provides a non-traded input, the outsourcing tax can have adverse impact on labor even if it is the most capital-intensive sector of the economy. Thus contrary to expectations, a tax on a capital-intensive sector actually hurts labor. In the case where the intermediate input is traded, the outsourcing tax closes down either the intermediate input producing sector, or the final good producing sector which uses the intermediate input.

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File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I2-P118.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 2 ()
Pages: 1271-1277

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Handle: RePEc:ebl:ecbull:eb-09-00802

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Related research

Keywords: Fragmentation; Outsourcing; Factor intensity; Tax incidence;

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References

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  1. Keith Head & Thierry Mayer & John Ries, 2007. "How Remote is the Offshoring Threat?," Working Papers 2007-18, CEPII research center.
  2. James R. Markusen & Anthony J. Venables, 2005. "A Multi-Country Approach to Factor-Proportions Trade and Trade Costs," NBER Working Papers 11051, National Bureau of Economic Research, Inc.
  3. Leamer, Edward E, 1996. "Wage Inequality from International Competition and Technological Change: Theory and Country Experience," American Economic Review, American Economic Association, vol. 86(2), pages 309-14, May.
  4. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  5. Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Why it is foolish to tax outsourced goods
    by Economic Logician in Economic Logic on 2009-10-15 14:28:00

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