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Title:The pain and gain of offshoring: The effects of tax progression in a segmented labour market PDF Logo
Authors:Rocha-Akis, Silvia
Issue Date:2012
Series/Report no.:CESifo working paper: Labour Markets 3739
Abstract:Over the previous two decades, many OECD countries have lowered the degree of progressivity in their tax structures. In this paper, I investigate labour tax progression in a world characterised by a segmented labour market where the higher-paying jobs are rationed due to (i) oligopolistic market structures, (ii) insider-oriented unions and (iii) international offshoring. In this second-best world, a revenue-neutral decrease in the progressivity of the tax schedule promotes higher domestic (net-of-tax) wage inequality where a shrinking fraction of workers provides the tax revenue to finance the redistribution to an increasing share of lower-wage workers. However, as the tax reform involves an increase in the offshoring intensity, which may translate into a cost advantage for the domestic average consumer, the overall welfare effect is ambiguous. It is shown that the negative effects dominate if trade unions are sufficiently insider-oriented.
Subjects:relocation
unionised oligopoly
labour market segmentation
labour income tax progression
trade union preferences
JEL:L13
H20
F16
J50
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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