The Taxation of Bilateral Trade with Endogenous Information

Tri Vi Dang and Florian Morath

No 5157, CESifo Working Paper Series from CESifo

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.

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)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: The Taxation of Bilateral Trade with Endogenous Information (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5157

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