Impacts of Labor Taxation with Perfectly andImperfectly Competitive Domestic Labor Marketsunder Flexible Outsourcing

What are the impacts of labor tax reform on wage setting and employment to keep therelative tax burden per low-skilled and high-skilled workers constant in the case ofheterogenous domestic labor markets, i.e. imperfect competition in low-skilled labor andperfect competition in high-skilled labor in the presence of outsourcing? A higher degree oftax progression by raising the wage tax and the tax exemption for the low-skilled workers willdecrease the wage rate and increase labour demand of low-skilled workers, whereas it willdecrease (increase) employment of high-skilled workers in CES utility function when theelasticity of substitution between consumption and leisure is higher (lower) than one. A higherdegree of wage tax progression for the high-skilled worker will have no effect on the highskilledwage in the presence of CES and C-D utility function so this will have no totalemployment effects....