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The Taxation of Bilateral Trade with Endogenous Information

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Listed:
  • Tri Vi Dang
  • Florian Morath

Abstract

This paper analyzes the effects of taxation on information acquisition and bilateral trade in decentralized markets. We show that a profit tax and a transaction tax have opposite implications for equilibrium outcome in bargaining. A marginal increase of a transaction tax increases the incentive to produce private information which creates adverse selection and reduces the probability of trade. In contrast, a marginal increase of a profit tax reduces the incentive to produce information and increases the probability of trade. In markets where there are gains from trade and private information acquisition creates endogenous lemons problems a profit tax dominates a transaction tax.

Suggested Citation

  • Tri Vi Dang & Florian Morath, 2015. "The Taxation of Bilateral Trade with Endogenous Information," CESifo Working Paper Series 5157, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5157
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    bargaining; information acquisition; taxation; financial transaction tax; funding markets;

    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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