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Output taxation by a revenue-raising government under signaling

Author

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  • Manel Antelo

    (Universidad de Santiago de Compostela)

Abstract

In this paper the behavior of a tax-collecting government (a tax office) when imposing a quantity-tax to firms is analyzed along a two-period signaling model. Each taxpayer privately knows its technological attributes, while third parties—the tax office among them—have only a prior belief about this fact, so firms can be tempted to behave opportunistically. In monopoly, signaling is always costly in terms of output deviation and the tax office reacts by setting, a smaller tax in (asymmetric information) period 1 than it would under symmetric information. In oligopoly, signaling can be either costly or costless. In the former case, the tax imposed by the tax office to each firm is below that imposed under symmetric information, while it is equal in the latter case. Besides, fiscal revenue under signaling is unambiguously lower than under symmetric information, even when tax size is the same in both contexts

Suggested Citation

  • Manel Antelo, 2011. "Output taxation by a revenue-raising government under signaling," Economic Working Papers at Centro de Estudios Andaluces E2011/03, Centro de Estudios Andaluces.
    • Handle: RePEc:cea:doctra:e2011_03
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    File URL: http://www.centrodeestudiosandaluces.info/PDFS/E201103.pdf
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    References listed on IDEAS

    as
    1. Kim, Jae-Cheol & Chang, Ki-Bok, 1993. "An Optimal Tax/Subsidy for Output and Pollution Control under Asymmetric Information in Oligopoly Markets," Journal of Regulatory Economics, Springer, vol. 5(2), pages 183-197, June.
    2. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
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    More about this item

    Keywords

    Output-tax; tax office; asymmetric information; signaling;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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