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

Thomas Aronsson () and Erkki Koskela
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 784, Umeå Economic Studies from Umeå University, 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.

Keywords: Outsourcing; redistribution; optimal nonlinear taxation; intertemporal model (search for similar items in EconPapers)
JEL-codes: H21 H25 J31 J62 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2009-10-02
New Economics Papers: this item is included in nep-dge and nep-pub
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.econ.umu.se/DownloadAsset.action?conten ... Id=3&assetKey=ues784 (application/pdf)

Related works:
Working Paper: Optimal Income Taxation, Outsourcing and Policy Cooperation in a Dynamic Economy (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:0784

Access Statistics for this paper

More papers in Umeå Economic Studies from Umeå University, Department of Economics Department of Economics, Umeå University, S-901 87 Umeå, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by David Skog ().