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Emigration, Tax on Remittances and Export Quality

Emigration, Tax on Remittances and Export Quality We examine the implications of the emigration of unskilled workers for the quality of a skill-based good exported by a small open economy. This issue is relevant in the context of quality constraints faced by the developing countries like China and India in promoting their exports, on the one hand, and the significantly large emigrations of workers, particularly unskilled workers, which lower their productive capacities, on the other hand. We show that even though unskilled workers are not directly used in the production of quality-differentiated export goods, their emigration would lower export quality when quality upgradation requires more intensive use of skilled workers relative to capital. This result follows from the complementarity between skilled and unskilled wages in a competitive general equilibrium model. A quality-content production subsidy in such a case can mitigate the adverse effects of emigration. The significantly large remittances received from unskilled emigrants create scope for taxing such remittances to finance the subsidy.JEL Classification: F16, F20, F22, F24 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png South Asian Journal Of Macroeconomics And Public Finance SAGE

Emigration, Tax on Remittances and Export Quality

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References (38)

Publisher
SAGE
Copyright
© 2021 SAGE Publications
ISSN
2277-9787
eISSN
2321-0273
DOI
10.1177/2277978720980236
Publisher site
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Abstract

We examine the implications of the emigration of unskilled workers for the quality of a skill-based good exported by a small open economy. This issue is relevant in the context of quality constraints faced by the developing countries like China and India in promoting their exports, on the one hand, and the significantly large emigrations of workers, particularly unskilled workers, which lower their productive capacities, on the other hand. We show that even though unskilled workers are not directly used in the production of quality-differentiated export goods, their emigration would lower export quality when quality upgradation requires more intensive use of skilled workers relative to capital. This result follows from the complementarity between skilled and unskilled wages in a competitive general equilibrium model. A quality-content production subsidy in such a case can mitigate the adverse effects of emigration. The significantly large remittances received from unskilled emigrants create scope for taxing such remittances to finance the subsidy.JEL Classification: F16, F20, F22, F24

Journal

South Asian Journal Of Macroeconomics And Public Finance – SAGE

Published: Jun 1, 2021

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