Date of Graduation
Chambers College of Business and Economics
This dissertation presents three essays on the evidence and effects of international mobility of capital and labor. Essay 1 explores the behavior of this coefficient in OECD countries over a thirty year period. The second and third essays focus on international movements of labor measured by immigration and outsourcing. The second essay theoretically examines the impact of low skill outsourcing on domestic tax rates, namely labor tax and profit tax. The third essay empirically shows the impact of low skilled immigration and outsourcing on labor tax rates in OECD countries. What follows is a summary of the essays.;The first essay, "Reassessing International Capital Mobility: The Feldstein-Horioka Puzzle Disappears" examines how capital mobility changed over the years, especially during the 1990s often termed as the era of globalization. Feldstein-Horioka type regressions using pooled annual data for OECD countries show that savings-investment correlations fall continuously throughout the 1990s implying increasing capital mobility. This is in sharp contrast to the fairly stable behavior of the coefficient till late 1980s. Evidences show that the phenomenon is indeed global and not country specific. Current account data also confirms increased capital mobility. Developing countries too become financially integrated during the 1990s, but they had an earlier start than OECD nations.;The second essay, "Outsourcing and Domestic Tax Policy", is a theoretical depiction of the impact of foreign outsourcing on domestic tax rates. The model includes two types of workers, namely managers or high skilled workers who also own the firms and workers who are low skilled and are hired by the managers. An individual can choose to become either of the two given his innate ability and the cost of acquiring skills. In addition, we introduce outsourcing as a factor in a firm's decision making. The firms or managers can hire native workers and outsource jobs abroad. The government taxes both labor income and profit income and provides transfers. The tax rates are determined through a process of voting in which the median voter plays a pivotal role. Our model shows that if the domestic firms increase foreign outsourcing, labor tax rates decline and profit tax rates increase unambiguously in the home country.;The third essay, "Immigration, Outsourcing and Tax Policy: Evidence from OECD Countries" studies effects of immigration and outsourcing on domestic labor tax rates. Immigration and outsourcing are typically portrayed as substitutes in production and in terms of their effects on the domestic economy. A political economy analysis shows that immigration and outsourcing may actually have very different impact on the domestic economy, so that they may not be viewed as "substitutes" anymore. A study on 15 OECD countries finds that while low skilled immigration increases tax burden on domestic labor, low skilled outsourcing may actually reduce it. Low skilled immigration may impose additional fiscal burden and thus lead to higher tax rates on labor. Outsourcing of low skilled jobs, on the other hand, does not make any claims on government transfers and therefore, may result in lower domestic labor tax rates.
Pal, Sudeshna, "Essays on evidence and effects of international movements of capital and labor" (2008). Graduate Theses, Dissertations, and Problem Reports. 2693.