IDEAS home Printed from https://ideas.repec.org/p/hhs/umnees/0784.html
   My bibliography  Save this paper

Optimal Income Taxation, Outsourcing and Policy Cooperation in a Dynamic Economy

Author

Listed:
  • Aronsson, Thomas

    () (Department of Economics, Umeå University)

  • Koskela, Erkki

    () (Department of Economics)

Abstract

This paper concerns optimal income taxation in a two-country OLG economy, where each country is characterized by asymmetric information between the government and the private sector, and where one of the countries outsources part of its production to the other. In the country whose firms outsource production abroad, the government will respond to outsourcing by implementing a more progressive labor income tax structure and higher marginal capital income tax rates than it would have done in the absence of outsourcing. The tax policy response by the government in the country that receives foreign production capacity is, in general, ambiguous and depends on a tradeoff between wage-equality and factor income from abroad. By using the noncooperative Nash equilibrium as a reference case, we also consider tax policy cooperation leading to higher welfare.

Suggested Citation

  • Aronsson, Thomas & Koskela, Erkki, 2009. "Optimal Income Taxation, Outsourcing and Policy Cooperation in a Dynamic Economy," Umeå Economic Studies 784, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0784
    as

    Download full text from publisher

    File URL: http://www.econ.umu.se/DownloadAsset.action?contentId=118585&languageId=3&assetKey=ues784
    Download Restriction: no

    More about this item

    Keywords

    Outsourcing; redistribution; optimal nonlinear taxation; intertemporal model;

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:umnees:0784. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Skog). General contact details of provider: http://edirc.repec.org/data/inumuse.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.