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Subhayu Bandyopadhyay, Sugata Marjit and Vivekananda Mukherjee
''Incidence of an outsourcing tax on intermediate inputs''
( 2010, Vol. 30 No.2 )
The paper uses a Hecksher-Ohlin-Samuelson type general equilibrium framework to consider the incidence of an outsourcing tax on an economy in which the production of a specific intermediate input has been fragmented and outsourced. If the outsourced sector provides a non-traded input, the outsourcing tax can have adverse impact on labor even if it is the most capital-intensive sector of the economy. Thus contrary to expectations, a tax on a capital-intensive sector actually hurts labor. In the case where the intermediate input is traded, the outsourcing tax closes down either the intermediate input producing sector, or the final good producing sector which uses the intermediate input.
Keywords: Fragmentation, Outsourcing, Factor intensity, Tax incidence
JEL: F1 - Trade: General
D3 - Distribution: General
Manuscript Received : Dec 22 2009 Manuscript Accepted : May 07 2010

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