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Signaling and indirect taxation

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  • Truyts, Tom

Abstract

Commodities communicate. We investigate optimal indirect taxation when both the intrinsic qualities of goods and signaling motivate consumption choices. Optimal indirect taxes are introduced into a monotonic signaling game. We provide sufficient conditions for the uniqueness of the D1 sequential equilibrium strategies. In the case of pure costly signaling, signaling goods can in equilibrium be taxed without burden. When commodities serve both intrinsic consumption and signaling, optimal taxes are characterized by a Ramsey rule, which deals with distortions resulting from signaling.

Suggested Citation

  • Truyts, Tom, 2012. "Signaling and indirect taxation," Journal of Public Economics, Elsevier, vol. 96(3), pages 331-340.
    • Handle: RePEc:eee:pubeco:v:96:y:2012:i:3:p:331-340
    DOI: 10.1016/j.jpubeco.2011.11.004
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    6. Anne-Kathrin Bronsert & Amihai Glazer & Kai A. Konrad, 2017. "Old money, the nouveaux riches and Brunhilde’s marriage strategy," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(1), pages 163-186, January.

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    More about this item

    Keywords

    Optimal taxation; Indirect taxation; Costly signaling; Identity; D1 criterion; Monotonic signaling;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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