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Optimal Taxation and Asymmetric Information in an Economy with Second-Hand Trade

  • Aronsson, Thomas

    ()

    (Department of Economics, Umeå University)

  • Sjögren, Tomas

    ()

    (Department of Economics, Umeå University)

  • Witterblad, Mikael

    ()

    (Department of Economics, Umeå University)

Registered author(s):

    This paper concerns optimal income and commodity taxation in a two-type overlapping generations model, where used durable goods are traded in a second-hand market. As second-hand transactions are difficult to observe, we assume that the government is unable to directly control second-hand transactions via commodity taxation. A basic question is how the government in this case may use the second-hand market as a channel for relaxation of the self-selection constraint. We show how the appearance of a second-hand market for used durable goods affects the optimal use of labor income and capital income taxation as well as the optimal use of commodity taxation on new durable goods.

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    File URL: http://www.econ.umu.se/DownloadAsset.action?contentId=47995&languageId=3&assetKey=ues732
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    Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 732.

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    Length: 46 pages
    Date of creation: 10 Mar 2008
    Date of revision:
    Handle: RePEc:hhs:umnees:0732
    Contact details of provider: Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
    Phone: 090 - 786 61 42
    Fax: 090 - 77 23 02
    Web page: http://www.econ.umu.se/
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    1. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
    2. Igal Hendel & Alessandro Lizzeri, 1997. "Adverse Selection in Durable Goods Markets," NBER Working Papers 6194, National Bureau of Economic Research, Inc.
    3. 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.
    4. A. B. Atkinson, 1977. "Optimal Taxation and the Direct versus Indirect Tax Controversy," Canadian Journal of Economics, Canadian Economics Association, vol. 10(4), pages 590-606, November.
    5. Marco Runkel, 2004. "Efficient Tax-Subsidy for a Polluting Durable Good Industry without Commitment Ability," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(4), pages 494-, December.
    6. Thomas Aronsson Aronsson & Thomas Jonsson & Tomas Sjögren, 2006. "Environmental Policy and Optimal Taxation in a Decentralized Economic Federation," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(3), pages 437-454, September.
    7. Robert H. Porter & Peter Sattler, 1999. "Patterns of Trade in the Market for Used Durables: Theory and Evidence," NBER Working Papers 7149, National Bureau of Economic Research, Inc.
    8. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
    9. Thomas W. Gilligan, 2004. "Lemons and Leases in the Used Business Aircraft Market," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 1157-1186, October.
    10. Pirttila, Jukka & Tuomala, Matti, 2001. "On optimal non-linear taxation and public good provision in an overlapping generations economy," Journal of Public Economics, Elsevier, vol. 79(3), pages 485-501, March.
    11. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
    12. BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU, Pierre, 1997. "Redistribution with unobservable bequests: a case for taxing capital income," CORE Discussion Papers 1997070, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    13. Ordover, J. A. & Phelps, E. S., 1979. "The concept of optimal taxation in the overlapping-generations model of capital and wealth," Journal of Public Economics, Elsevier, vol. 12(1), pages 1-26, August.
    14. Brett, Craig, 1998. "A note on nonlinear taxation in an overlapping generations model," MPRA Paper 8776, University Library of Munich, Germany.
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