Signaling and Indirect Taxation

29 Pages Posted: 15 Apr 2010

See all articles by Tom Truyts

Tom Truyts

KU Leuven - Faculty of Business and Economics (FEB); Facultés Universitaires Saint Louis à Bruxelles; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Date Written: April 1, 2010

Abstract

Commodities communicate. Consumers choose a consumption bundle both for its intrinsic characteristics and for what this bundle communicates about their qualities (or .identity.) to spectators. We investigate optimal indirect taxation when consumption choices are motivated by two sorts of concerns: intrinsic consumption and costly signaling. Optimal indirect taxes are introduced into a monotonic signaling game with a finite typespace of consumers. We provide sufficient conditions for the uniqueness of the D1 sequential equilibrium in terms of strategies. In the case of pure costly signaling, signaling goods can in equilibrium be taxed without burden and the optimal quantity taxes on these goods are infinite. When commodities serve both intrinsic consumption and signaling, optimal taxes can be characterized by a generalization of the Ramsey rule, which also deals with the distortions resulting from signaling.

Keywords: Optimal Taxation, Indirect Taxation, Costly Signaling, Identity

JEL Classification: C720, H210

Suggested Citation

Truyts, Tom, Signaling and Indirect Taxation (April 1, 2010). Available at SSRN: https://ssrn.com/abstract=1587987 or http://dx.doi.org/10.2139/ssrn.1587987

Tom Truyts (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Facultés Universitaires Saint Louis à Bruxelles ( email )

Boulevard du Jardin Botanique 43
Bruxelles, 1000
Belgium

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
19
Abstract Views
299
PlumX Metrics