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Intra-Sector Mobility and Specific Inputs in Tax-Incidence Theory

In a simple three-factor-two-final-good formulation (two factors immobile and sector-specific), a well-known result under competitive and full-employment assumptions is that a partial tax on the mobile factor in either industry hurts that factor everywhere. It can be reversed, however, when the taxed activity uses a sector-specific input produced in the other sector. The model becomes asymmetrical: the same tax often yields different results, depending on where it is levied and the nature and cross-sector linkages of various inputs. Their respective roles in determining tax- incidence are discussed in a series of plausible settings, each 3 x 2, involving primary and produced inputs and intra-sector mobility of some sector-specific factors. Cross-sector linkages of produced inputs, more than any other element, drive the new results which are often similar to those in models with all mobile factors.

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Paper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 20015.

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Date of creation: Nov 2001
Handle: RePEc:uwo:uwowop:20015
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Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2

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  1. Bhatia, Kul B, 1997. "Produced and Primary Specific Inputs in Tax-Incidence Theory," Public Finance = Finances publiques, , vol. 52(1), pages 1-21.
  2. Kul B. Bhatia, 2001. "Specific Inputs, Value-Added, and Production Linkages in Tax-Incidence Theory," Public Finance Review, , vol. 29(6), pages 461-486, November.
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