Incidence of an Outsourcing Tax on Intermediate Inputs
Federal Reserve Bank of St. Louis - Research Division
Centre for Studies in Social Sciences, Calcutta; City University of Hong Kong (CityUHK) - Department of Economics & Finance
April 21, 2010
FRB of St. Louis Working Paper No. 2009-039B
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.
Number of Pages in PDF File: 12
Keywords: Fragmentation, Outsourcing, Factor intensity, Tax incidence
JEL Classification: F11, F16, D33working papers series
Date posted: August 19, 2009 ; Last revised: May 14, 2010
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