Incidence of an Outsourcing Tax on Intermediate Inputs

FRB of St. Louis Working Paper No. 2009-039B

12 Pages Posted: 19 Aug 2009 Last revised: 14 May 2010

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Sugata Marjit

Centre for Studies in Social Sciences, Calcutta; City University of Hong Kong (CityUHK) - Department of Economics & Finance

Vivekananda Mukherjee

Jadavpur University

Date Written: April 21, 2010

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.

Keywords: Fragmentation, Outsourcing, Factor intensity, Tax incidence

JEL Classification: F11, F16, D33

Suggested Citation

Bandyopadhyay, Subhayu and Marjit, Sugata and Mukherjee, Vivekananda, Incidence of an Outsourcing Tax on Intermediate Inputs (April 21, 2010). FRB of St. Louis Working Paper No. 2009-039B. Available at SSRN: https://ssrn.com/abstract=1457892 or http://dx.doi.org/10.2139/ssrn.1457892

Subhayu Bandyopadhyay (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Sugata Marjit

Centre for Studies in Social Sciences, Calcutta ( email )

R 1, B.P. Township
Kolkata, West Bengal, India
Kolkata, West Bengal 700094
India

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Vivekananda Mukherjee

Jadavpur University ( email )

Calcutta, West Bengal 700032
India

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