Redistributive income taxation, outsourcing and foreign direct investment

This paper deals with optimal income taxation under international outsourcing and FDI. We show how the joint effect of outsourcing and FDI on the optimal marginal income tax rates depends on whether FDI is horizontal or vertical.

Research Highlights► Outsourcing and FDI jointly affect the wage distribution. ► FDI may either increase or decrease the optimal marginal income tax rates. ► The optimal tax policy depends on whether FDI is horizontal or vertical.