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Incidence of an outsourcing tax on intermediate inputs

Author

Listed:
  • 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.

Suggested Citation

  • Subhayu Bandyopadhyay & Sugata Marjit & Vivekananda Mukherjee, 2010. "Incidence of an outsourcing tax on intermediate inputs," Economics Bulletin, AccessEcon, vol. 30(2), pages 1271-1277.
  • Handle: RePEc:ebl:ecbull:eb-09-00802
    as

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    References listed on IDEAS

    as
    1. Head, Keith & Mayer, Thierry & Ries, John, 2009. "How remote is the offshoring threat?," European Economic Review, Elsevier, vol. 53(4), pages 429-444, May.
    2. 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 309-314, May.
    3. Markusen, James R. & Venables, Anthony J, 2005. "A Multi-Country Approach to Factor-Proportions Trade and Trade Costs," CEPR Discussion Papers 4872, C.E.P.R. Discussion Papers.
    4. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Fragmentation; Outsourcing; Factor intensity; Tax incidence;

    JEL classification:

    • F1 - International Economics - - Trade
    • D3 - Microeconomics - - Distribution

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