Abstract - Economics Research Reports


Intra-Sector Mobility and Specific Inputs in Tax-Incidence Theory

By Kul B. Bhatia (University of Western Ontario)

November, 2001

In a simple three-factor-two-final-good formulation (two factors immobile and sector- pecific), a well-known result under competitive and full-employment assumptions is that a partial tax on the mobile factor in either industry hurts that factor everywhere. It can be reversed, however, when the taxed activity uses a sector-specific input produced in the other sector. The model becomes asymmetrical: the same tax often yields different results, depending on where it is levied and the nature and cross- ector linkages of various inputs. Their respective roles in determining tax-incidence are discussed in a series of plausible settings, each 3 x 2, involving primary and produced inputs and intra-sector mobility of some sector-specific factors. Cross-sector linkages of produced inputs, more than any other element, drive the new results which are often similar to those in models with all mobile factors.

JEL Classification: H22
Keywords: general equilibrum; intra-sector mobility; tax-incidence