Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/242385 
Year of Publication: 
2021
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2021: Climate Economics
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
We look at the effect of domestic redistribution policy on offshoring in an asymmetric two country model of monopolistic competition, heterogeneous firms and occupational choice. The redistribution scheme is modeled by a combination of a progressive income tax and a lump-sum transfer. We find that the redistribution scheme lowers the degree of globalization measured by the share of offshoring firms in the economy. The intuition for this result is straightforward. The progressive income tax changes the factor allocation in the economy making it more attractive to become a worker. This leads to downward pressure on the domestic wage and thereby to a fall in the cost advantage of the host country. Changes in the domestic tax rate therefore affect the domestic economy not only directly but also via changes in the amount of offshoring. This has important implications both for aggregate income and for inequality.
Subjects: 
Offshoring
Income Inequality
Redistribution
Heterogeneous firms
JEL: 
D31
F12
F16
H24
Document Type: 
Conference Paper

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