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Taxation, Information Acquisition, and Trade in Decentralized Markets: Theory and Test

Author

Listed:
  • Tri Vi Dang
  • Xiaoxi Liu
  • Florian Morath

Abstract

This paper shows that a transaction tax makes trades in decentralized markets more information sensitive and enlarges the range of information costs for which the equilibrium exhibits private information acquisition and endogenous adverse selection. A transaction tax reduces the probability of trade. The opposite implications hold for a tax on capital gains. The theoretical implications of a transaction tax are tested using a tax policy change in one segment of Singapore’s housing market. Using various proxies for information sensitivity, the triple difference-in-difference analysis shows that a higher transaction tax reduces turnover more strongly when trades are more information sensitive.

Suggested Citation

  • Tri Vi Dang & Xiaoxi Liu & Florian Morath, 2022. "Taxation, Information Acquisition, and Trade in Decentralized Markets: Theory and Test," Working Papers 2022-08, Faculty of Economics and Statistics, Universität Innsbruck.
    • Handle: RePEc:inn:wpaper:2022-08
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bargaining; information acquisition; taxation; transaction tax; capital gains tax; tax incidence; decentralized markets; housing markets; policy experiment; information sensitivity;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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