Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26526
Authors: 
Aronsson, Thomas
Koskela, Erkki
Year of Publication: 
2008
Series/Report no.: 
CESifo working paper 2481
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.
Subjects: 
Outsourcing
optimal nonlinear taxation
public goods
unemployment
JEL: 
H21
H25
J31
J62
Document Type: 
Working Paper

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