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The Taxation of Bilateral Trade with Endogenous Information

  • Tri Vi Dang
  • Florian Morath
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    This paper analyzes the effects of taxation on trade in a decentralized market. We show that a tax on profits and a transaction tax have opposite implications for information acquisition and trade in the canonical take-it-and-leave-it offer bargaining model. A (marginal) increase of a transaction tax can lead to more information production and lower the probability of efficient trade. In contrast, a (marginal) increase of a profit tax can reduce the incentive to produce information and increase the probability of efficient trade. The taxation of profits can be efficiency enhancing when information is endogenous, while it has no effect when private information is exogenous.

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    Paper provided by Max Planck Institute for Tax Law and Public Finance in its series Working Papers with number tax-mpg-rps-2013-07.

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    Length: 41 pages
    Date of creation: Nov 2013
    Date of revision:
    Handle: RePEc:mpi:wpaper:tax-mpg-rps-2013-07
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    17. repec:fip:fedhpr:y:2010:i:may:p:65-71 is not listed on IDEAS
    18. Cremer, J. & Khalil, F., 1991. "Gathering Information Before Signing a Contract," Discussion Papers in Economics at the University of Washington 91-16, Department of Economics at the University of Washington.
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    27. Stiglitz, J.E., 1989. "Using Tax Policy To Curb Speculative Short-Term Trading," Papers t2, Columbia - Center for Futures Markets.
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