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Outsourcing, Public Input Provision and Policy Cooperation

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  • Thomas Aronsson
  • Erkki Koskela

Abstract

This paper concerns public input provision as an instrument for redistribution under international outsourcing by using a model-economy comprising two countries, North and South, where firms in the North may outsource part of their low-skilled labor intensive production to the South. We consider two interrelated issues: (i) the incentives for each country to modify the provision of public input goods in response to international outsourcing, and (ii) whether international outsourcing justifies policy cooperation. If the public input good is substitutable for (complementary with) outsourcing in terms of the production function faced by northern firms, then outsourcing contributes to increase (decrease) the public input provision in the North. For the South, the optimal policy response depends on the level of outsourcing. We also show how policy cooperation with respect to public input provision can be designed to increase the overall social welfare.

Suggested Citation

  • Thomas Aronsson & Erkki Koskela, 2009. "Outsourcing, Public Input Provision and Policy Cooperation," CESifo Working Paper Series 2886, CESifo.
    • Handle: RePEc:ces:ceswps:_2886
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    More about this item

    Keywords

    outsourcing; redistribution; public input goods; asymmetric information;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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