Taxation, Information Acquisition, and Trade in Decentralized Markets: Theory and Test

Tri Vi Dang (), Xiaoxi Liu () and Florian Morath ()

Working Papers from Faculty of Economics and Statistics, Universität Innsbruck

Abstract: This paper shows that a transaction tax makes trades in decentralized markets more information sensitive and enlarges the range of information costs for which the equilibrium exhibits private information acquisition and endogenous adverse selection. A transaction tax reduces the probability of trade. The opposite implications hold for a tax on capital gains. The theoretical implications of a transaction tax are tested using a tax policy change in one segment of Singapore’s housing market. Using various proxies for information sensitivity, the triple difference-in-difference analysis shows that a higher transaction tax reduces turnover more strongly when trades are more information sensitive.

Keywords: Bargaining; information acquisition; taxation; transaction tax; capital gains tax; tax incidence; decentralized markets; housing markets; policy experiment; information sensitivity (search for similar items in EconPapers)
JEL-codes: C78 D82 D83 G18 H20 (search for similar items in EconPapers)
Pages: 58
Date: 2022-08
New Economics Papers: this item is included in nep-acc, nep-gth, nep-pbe and nep-sea
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