The Taxation of Bilateral Trade with Endogenous Information

Tri Vi Dang and Florian Morath

Working Papers from Max Planck Institute for Tax Law and Public Finance

Abstract: 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.

Keywords: Bargaining; information acquisition; taxation; financial transaction tax; funding markets (search for similar items in EconPapers)
JEL-codes: C78 D82 D83 G18 H20 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2013-11
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http://www.tax.mpg.de/RePEc/mpi/wpaper/TAX-MPG-RPS-2013-07.pdf Full text (original version) (application/pdf)

Related works:
Working Paper: The Taxation of Bilateral Trade with Endogenous Information (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:mpi:wpaper:tax-mpg-rps-2013-07

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