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Signaling and indirect taxation

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  • Truyts, Tom
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    Abstract

    Commodities communicate. We investigate optimal indirect taxation when both the intrinsic qualities of goods and signaling motivate consumption choices. Optimal indirect taxes are introduced into a monotonic signaling game. We provide sufficient conditions for the uniqueness of the D1 sequential equilibrium strategies. In the case of pure costly signaling, signaling goods can in equilibrium be taxed without burden. When commodities serve both intrinsic consumption and signaling, optimal taxes are characterized by a Ramsey rule, which deals with distortions resulting from signaling.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0047272711001678
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Public Economics.

    Volume (Year): 96 (2012)
    Issue (Month): 3 ()
    Pages: 331-340

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    Handle: RePEc:eee:pubeco:v:96:y:2012:i:3:p:331-340

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    Web page: http://www.elsevier.com/locate/inca/505578

    Related research

    Keywords: Optimal taxation; Indirect taxation; Costly signaling; Identity; D1 criterion; Monotonic signaling;

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