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

Kul Bhatia ()

No 20015, University of Western Ontario, Departmental Research Report Series from University of Western Ontario, Department of Economics

Abstract: 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.

Keywords: general equilibrium; intra-sector mobility; tax-incidence (search for similar items in EconPapers)
Date: 2001-11
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