Umeå Economic Studies
No 759: Optimal Redistributive Taxation and Provision of Public Input Goods in an Economy with Outsourcing and Unemployment
Thomas Aronsson (thomas.aronsson@econ.umu.se) and Erkki Koskela (erkki.koskela@helsinki.fi)
Abstract:
This paper concerns optimal redistributive income taxation and provision of a public input good in a two-type model with a minimum wage policy implemented for the low-ability type, where firms may use some of their resources for outsourcing by locating part of the production process abroad. Our results show that the incentive to relax the self-selection constraint and the incentive to increase employment among the low-skilled reinforce each other in terms of marginal income taxation. In addition, the appearance of equilibrium unemployment also provides an incentive for the government to directly tax outsourcing. Without a direct instrument for taxing outsourcing, the government may reduce the amount of resources spent on outsourcing by increased provision of the public input good, which is desirable in the sense that reduced outsourcing contributes to less wage inequality and increased employment.
Keywords: outsourcing; optimal nonlinear taxation; public goods; unemployment
JEL-Codes: H21; H25; J31; J62
26 pages, Thursday, November 20, 2008
Before downloading an electronic version below you should read the following statement on copyright.
Download Acrobat Reader for viewing and printing pdf files.
Full text version of the paper:
ues759.pdf Acrobat pdf file (115 kB)
[Home Page for Current Series] [Department of Economics, Umeå universitet]
[The S-WoPEc Working Paper Collection]
This page was generated on Thursday, November 20, 2008
Report problems with accessing this service to webmaster@econ.umu.se
