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The signaling effect of tax policy

  • F. Barigozzi
  • B. Villeneuve

The paper focuses on the signaling value of a tax when agents are less informed on the effect of their consumption than the policy-maker. When he chooses the tax, the policy-maker optimizes both the incentive effect and the effect on beliefs. We show that optimal taxes under symmetric information are not implementable under asymmetric information. The tax distortion required for credibility depends on the marginal cost of public funds and brings to undertaxation.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 500.

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Date of creation: 2004
Date of revision:
Handle: RePEc:bol:bodewp:500
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  1. Trond Olsen & Petter Osmundsen, 2000. "Strategic Tax Competition; Implications of National Ownership," CESifo Working Paper Series 281, CESifo Group Munich.
  2. Brown, Gardner & Layton, David F., 1996. "Resistance economics: social cost and the evolution of antibiotic resistance," Environment and Development Economics, Cambridge University Press, vol. 1(03), pages 349-355, July.
  3. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 157-183, August.
  4. Hanson, Robin, 2003. "Warning labels as cheap-talk: why regulators ban drugs," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2013-2029, September.
  5. Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-48, July.
  6. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
  7. Aaron S. Edlin & Pinar Karaca-Mandic, 2004. "The Accident Externality from Driving," Public Economics 0401003, EconWPA.
  8. F. Barigozzi & B. Villeneuve, 2001. "Influencing the Misinformed Misbehaver: An Analysis of Public Policy towards Uncertainty and External Effects," Working Papers 404, Dipartimento Scienze Economiche, Universita' di Bologna.
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