Optimal Redistributive Taxation and Provision of Public Input Goods in an Economy with Outsourcing and Unemployment
AbstractThis paper concerns optimal redistributive income taxation and provision of a public input good in a two-type model with a minimum wage policy implemented for the low-ability type, where firms may use some of their resources for outsourcing by locating part of the production process abroad. Our results show that the incentive to relax the self-selection constraint and the incentive to increase employment among the low-skilled reinforce each other in terms of marginal income taxation. In addition, the appearance of equilibrium unemployment also provides an incentive for the government to directly tax outsourcing. Without a direct instrument for taxing outsourcing, the government may reduce the amount of resources spent on outsourcing by increased provision of the public input good, which is desirable in the sense that reduced outsourcing contributes to less wage inequality and increased employment.
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Bibliographic InfoPaper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 759.
Length: 26 pages
Date of creation: 27 Nov 2008
Date of revision:
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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
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More information through EDIRC
outsourcing; optimal nonlinear taxation; public goods; unemployment;
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-07 (All new papers)
- NEP-LAB-2008-12-07 (Labour Economics)
- NEP-PBE-2008-12-07 (Public Economics)
- NEP-PUB-2008-12-07 (Public Finance)
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