Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2018:17: Gale's Fixed Tax for Exchanging Houses

Tommy Andersson (), Lars Ehlers (), Lars-Gunnar Svensson () and Ryan Tierney ()
Additional contact information
Tommy Andersson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Lars Ehlers: Département de sciences économiques, Université de Montréal, Postal: Département de sciences économiques, Université de Montréal, Montréal, Québec H3C 3J7, Canada
Lars-Gunnar Svensson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Ryan Tierney: Institute of Business and Economics, University of Southern Denmark, Postal: Campusvej 55, Odense M, 5230, Denmark

Abstract: We consider the taxation of exchanges among a set of agents where each agent owns one object. Agents may have different valuations for the objects and they need to pay taxes for exchanges. Using basic properties, we show that if pairwise (or some) exchanges of objects are allowed, then all exchanges (in any possible manner) must be feasible. Furthermore, whenever any agent exchanges his object, he pays the same fixed tax (a lump sum payment which is identical for all agents) independently of which object he consumes. Gale's top trading cycles algorithm finds the final allocation using the agents' valuations adjusted with the fixed tax. Our mechanisms are in stark contrast to Clarke-Groves taxation schemes or the max-med schemes proposed by Sprumont (2013).

Keywords: Fixed Tax; Exchanges; Top Trading

JEL-codes: C71; C78; D63; D71; D78

23 pages, June 20, 2018

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