[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_5157.html
   My bibliography  Save this paper

The Taxation of Bilateral Trade with Endogenous Information

Author

Listed:
  • Tri Vi Dang
  • Florian Morath
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.

Suggested Citation

  • Tri Vi Dang & Florian Morath, 2015. "The Taxation of Bilateral Trade with Endogenous Information," CESifo Working Paper Series 5157, CESifo.
    • Handle: RePEc:ces:ceswps:_5157
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp5157.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Strategic Information Gathering before a Contract Is Offered," Journal of Economic Theory, Elsevier, vol. 81(1), pages 163-200, July.
    2. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2017. "Measuring Systemic Risk," The Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 2-47.
    3. repec:fip:fedhpr:y:2010:i:may:p:65-71 is not listed on IDEAS
    4. Summers, L.H. & Summers, V.P., 1989. "When Financial Markets Work Too Well : A Cautious Case For A Securities Transactions Tax," Papers t12, Columbia - Center for Futures Markets.
    5. Cremer, Jacques & Khalil, Fahad, 1992. "Gathering Information before Signing a Contract," American Economic Review, American Economic Association, vol. 82(3), pages 566-578, June.
    6. Andersson, Fredrik, 1996. "Income taxation and job-market signaling," Journal of Public Economics, Elsevier, vol. 59(2), pages 277-298, February.
    7. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
    8. Dang, Tri Vi, 2008. "Bargaining with endogenous information," Journal of Economic Theory, Elsevier, vol. 140(1), pages 339-354, May.
    9. Felix Bierbrauer, 2012. "On the Incidence of a Financial Transactions Tax in a Model with Fire Sales," CESifo Working Paper Series 3870, CESifo.
    10. Florian Morath & Johannes Münster, 2013. "Information acquisition in conflicts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(1), pages 99-129, September.
    11. Banerjee, Anindya & Besley, Timothy, 1990. "Moral Hazard, Limited Liability and Taxation: A Principal-Agent Model," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 46-60, January.
    12. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    13. Hernando-Veciana, Ángel, 2009. "Information acquisition in auctions: Sealed bids vs. open bids," Games and Economic Behavior, Elsevier, vol. 65(2), pages 372-405, March.
    14. Arnott, Richard & Stiglitz, Joseph E., 1986. "Moral hazard and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 29(1), pages 1-24, February.
    15. Ginsburgh, Victor & Legros, Patrick & Sahuguet, Nicolas, 2010. "On the incidence of commissions in auction markets," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 639-644, November.
    16. Felix Bierbrauer, 2012. "On the incidence of a financial transactions tax in a model with fire sales," Working Paper Series in Economics 55, University of Cologne, Department of Economics.
    17. Laszlo Goerke, 2011. "Commodity tax structure under uncertainty in a perfectly competitive market," Journal of Economics, Springer, vol. 103(3), pages 203-219, July.
    18. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    19. Francis K. Cheung, 1998. "Excise Tax on a Non-Uniform Pricing Monopoly: Ad Valorem and Unit Taxes Compared," Canadian Journal of Economics, Canadian Economics Association, vol. 31(5), pages 1192-1203, November.
    20. Stiglitz, J.E., 1989. "Using Tax Policy To Curb Speculative Short-Term Trading," Papers t2, Columbia - Center for Futures Markets.
    21. Mr. Michael Keen, 2011. "The Taxation and Regulation of Banks," IMF Working Papers 2011/206, International Monetary Fund.
    22. J. E. Stiglitz, 1969. "The Effects of Income, Wealth, and Capital Gains Taxation on Risk-Taking," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 83(2), pages 263-283.
    23. Kaplow, Louis, 1992. "Income Tax Deductions for Losses as Insurance," American Economic Review, American Economic Association, vol. 82(4), pages 1013-1017, September.
    24. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 317-355.
    25. Shackelford, Douglas A. & Shaviro, Daniel N. & Slemrod, Joel, 2010. "Taxation and the Financial Sector," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(4), pages 781-806, December.
    26. Sandmo, Agnar, 1985. "The effects of taxation on savings and risk taking," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 5, pages 265-311, Elsevier.
    27. Ms. Thornton Matheson, 2011. "Taxing Financial Transactions: Issues and Evidence," IMF Working Papers 2011/054, International Monetary Fund.
    28. Evsey D. Domar & Richard A. Musgrave, 1944. "Proportional Income Taxation and Risk-Taking," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 58(3), pages 388-422.
    29. Sissel Jensen & Guttorm Schjelderup, 2011. "Indirect taxation and tax incidence under nonlinear pricing," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(5), pages 519-532, October.
    30. Ireland, Norman J., 1994. "On limiting the market for status signals," Journal of Public Economics, Elsevier, vol. 53(1), pages 91-110, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Eduardo Dávila, 2023. "Optimal Financial Transaction Taxes," Journal of Finance, American Finance Association, vol. 78(1), pages 5-61, February.
    2. Eduardo Dávila & Cecilia Parlatore, 2021. "Trading Costs and Informational Efficiency," Journal of Finance, American Finance Association, vol. 76(3), pages 1471-1539, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tri Vi Dang & Xiaoxi Liu & Florian Morath, 2022. "Taxation, Information Acquisition, and Trade in Decentralized Markets: Theory and Test," Working Papers 2022-08, Faculty of Economics and Statistics, Universität Innsbruck.
    2. Cappelletti, Giuseppe & Guazzarotti, Giovanni & Tommasino, Pietro, 2017. "The stock market effects of a securities transaction tax: Quasi-experimental evidence from Italy," Journal of Financial Stability, Elsevier, vol. 31(C), pages 81-92.
    3. Bierbrauer, Felix, 2014. "Tax incidence for fragile financial markets," Journal of Public Economics, Elsevier, vol. 120(C), pages 107-125.
    4. Xavier Vives, 2017. "Endogenous Public Information and Welfare in Market Games," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 935-963.
    5. Dieler, T., 2014. "Essays on asset trading," Other publications TiSEM ea0c811e-e335-402f-a3e2-8, Tilburg University, School of Economics and Management.
    6. Yan Chen & YingHua He, 2022. "Information acquisition and provision in school choice: a theoretical investigation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(1), pages 293-327, July.
    7. Eduardo Dávila, 2023. "Optimal Financial Transaction Taxes," Journal of Finance, American Finance Association, vol. 78(1), pages 5-61, February.
    8. Hurkens, Sjaak & Vulkan, Nir, 2006. "Endogenous private information structures," European Economic Review, Elsevier, vol. 50(1), pages 35-54, January.
    9. Karolina Puławska, 2022. "Taxation of the financial sector: Is a bank levy the answer to the financial crisis?," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(4), pages 390-404, December.
    10. Felix Bierbrauer, 2013. "Financial Transaction Taxes and Fire Sales," 2013 Meeting Papers 433, Society for Economic Dynamics.
    11. Eduardo Dávila & Cecilia Parlatore, 2021. "Trading Costs and Informational Efficiency," Journal of Finance, American Finance Association, vol. 76(3), pages 1471-1539, June.
    12. Ms. Thornton Matheson, 2011. "Taxing Financial Transactions: Issues and Evidence," IMF Working Papers 2011/054, International Monetary Fund.
    13. Tobias Dieler & Sonny Biswas & Giacomo Calzolari & Fabio Castiglionesi, 2023. "Asset Trade, Real Investment, and a Tilting Financial Transaction Tax," Management Science, INFORMS, vol. 69(4), pages 2401-2424, April.
    14. Zhang, Chris H. & Frijns, Bart, 2019. "Noise trading and informational efficiency," EconStor Preprints 198037, ZBW - Leibniz Information Centre for Economics.
    15. Eichfelder, Sebastian & Lau, Mona & Noth, Felix, 2017. "Financial transaction taxes: Announcement effects, short-run effects, and long-run effects," IWH Discussion Papers 4/2017, Halle Institute for Economic Research (IWH).
    16. Ekmekci, Mehmet & Kos, Nenad, 2023. "Signaling covertly acquired information," Journal of Economic Theory, Elsevier, vol. 214(C).
    17. Chen, Yan & He, YingHua, 2021. "Information acquisition and provision in school choice: An experimental study," Journal of Economic Theory, Elsevier, vol. 197(C).
    18. Nezafat, Mahdi & Schroder, Mark, 2023. "The negative value of private information in illiquid markets," Journal of Economic Theory, Elsevier, vol. 210(C).
    19. Eichfelder, Sebastian & Lau, Mona & Noth, Felix, 2018. "The impact of financial transaction taxes on stock markets: Short-run effects, long-run effects, and migration," arqus Discussion Papers in Quantitative Tax Research 228, arqus - Arbeitskreis Quantitative Steuerlehre.
    20. Rawley Z. Heimer & Alp Simsek, 2017. "Should Retail Investors' Leverage Be Limited?," NBER Working Papers 24176, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    bargaining; information acquisition; taxation; financial transaction tax; funding markets;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_5157. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.