Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 732: Optimal Taxation and Asymmetric Information in an Economy with Second-Hand Trade

Thomas Aronsson (), Tomas Sjögren () and Mikael Witterblad ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Tomas Sjögren: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Mikael Witterblad: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: This paper concerns optimal income and commodity taxation in a two-type overlapping generations model, where used durable goods are traded in a second-hand market. As second-hand transactions are difficult to observe, we assume that the government is unable to directly control second-hand transactions via commodity taxation. A basic question is how the government in this case may use the second-hand market as a channel for relaxation of the self-selection constraint. We show how the appearance of a second-hand market for used durable goods affects the optimal use of labor income and capital income taxation as well as the optimal use of commodity taxation on new durable goods.

Keywords: Optimal taxation; Intertemporal Choice; Durable Goods

JEL-codes: D91; H21; H23

46 pages, March 10, 2008

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