IDEAS home Printed from https://ideas.repec.org/a/eee/pubeco/v96y2012i3p331-340.html
   My bibliography  Save this article

Signaling and indirect taxation

Author

Listed:
  • Truyts, Tom

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.

Suggested Citation

  • Truyts, Tom, 2012. "Signaling and indirect taxation," Journal of Public Economics, Elsevier, vol. 96(3), pages 331-340.
  • Handle: RePEc:eee:pubeco:v:96:y:2012:i:3:p:331-340 DOI: 10.1016/j.jpubeco.2011.11.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0047272711001678
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Blomquist, Soren & Micheletto, Luca, 2006. "Optimal redistributive taxation when government's and agents' preferences differ," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1215-1233, August.
    2. Harbaugh, William T., 1998. "What do donations buy?: A model of philanthropy based on prestige and warm glow," Journal of Public Economics, Elsevier, vol. 67(2), pages 269-284, February.
    3. Ireland, Norman J., 1998. "Status-seeking, income taxation and efficiency," Journal of Public Economics, Elsevier, vol. 70(1), pages 99-113, October.
    4. Besley, Timothy, 1988. "A simple model for merit good arguments," Journal of Public Economics, Elsevier, vol. 35(3), pages 371-383, April.
    5. Peter Kooreman & Marco Haan, 2006. "Price Anomalies in the Used Car Market," De Economist, Springer, vol. 154(1), pages 41-62, March.
    6. Hausman, Jerry A., 1977. "Errors in variables in simultaneous equation models," Journal of Econometrics, Elsevier, pages 389-401.
    7. John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
    8. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 1998. "Externalities and optimal taxation," Journal of Public Economics, Elsevier, vol. 70(3), pages 343-364, December.
    9. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
    10. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-750, December.
    11. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2005. "How much do we care about absolute versus relative income and consumption?," Journal of Economic Behavior & Organization, Elsevier, vol. 56(3), pages 405-421, March.
    12. Ireland, Norman J., 1994. "On limiting the market for status signals," Journal of Public Economics, Elsevier, vol. 53(1), pages 91-110, January.
    13. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August.
    14. Basmann, Robert L & Molina, David J & Slottje, Daniel J, 1988. "A Note on Measuring Veblen's Theory of Conspicuous Consumption," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 531-535, August.
    15. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    16. Luuk Van Kempen, 2004. "Are the poor willing to pay a premium for designer labels? a field experiment in Bolivia," Oxford Development Studies, Taylor & Francis Journals, vol. 32(2), pages 205-224.
    17. Roger Mason, 1998. "The Economics of Conspicuous Consumption," Books, Edward Elgar Publishing, number 1508, April.
    18. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-359, March.
    19. Tom Truyts, 2010. "Social Status In Economic Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 137-169, February.
    20. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    21. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
    22. Ng, Yew-Kwang, 1987. "Diamonds Are a Government's Best Friend: Burden-Free Taxes on Goods Valued for Their Values," American Economic Review, American Economic Association, vol. 77(1), pages 186-191, March.
    23. J. Solnick, Sara & Hemenway, David, 1998. "Is more always better?: A survey on positional concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 37(3), pages 373-383, November.
    24. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
    25. Ireland, N. J., 2001. "Optimal income tax in the presence of status effects," Journal of Public Economics, Elsevier, vol. 81(2), pages 193-212, August.
    26. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
    27. van Kempen, L.A.C.M., 2005. "Status consumption and poverty in developing countries," Other publications TiSEM 93c0bb27-970f-422c-a56f-9, Tilburg University, School of Economics and Management.
    28. Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, vol. 112(479), pages 362-383, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. König, Tobias & Lausen, Tobias, 2017. "Relative Consumption Preferences and Public Provision of Private Goods," Rationality and Competition Discussion Paper Series 18, CRC TRR 190 Rationality and Competition.
    2. Anne-Kathrin Bronsert & Amihai Glazer & Kai A. Konrad, 2017. "Old money, the nouveaux riches and Brunhilde’s marriage strategy," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(1), pages 163-186, January.
    3. Bruno Borger & Amihai Glazer, 2016. "Signaling, network externalities, and subsidies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 798-811, October.
    4. König, Tobias & Lausen, Tobias, 2016. "Relative consumption preferences and public provision of private goods," Discussion Papers, Research Unit: Market Behavior SP II 2016-213, Social Science Research Center Berlin (WZB).

    More about this item

    Keywords

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

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:96:y:2012:i:3:p:331-340. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505578 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.