Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/30416
Authors: 
Aronsson, Thomas
Koskela, Erkki
Year of Publication: 
2009
Series/Report no.: 
CESifo Working Paper 2776
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.
Subjects: 
outsourcing
redistribution
optimal nonlinear taxation
intertemporal model
JEL: 
H21
H25
J31
J62
Document Type: 
Working Paper

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