The capital tax and welfare effects from asymmetric information on equity markets

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper explores the implications of informational asymmetries between domestic and foreign investors for optimal capital tax rates and welfare. It adopts a model in which asymmetric information implies a home bias in equity. The paper finds that asymmetric information may raise capital tax rates by reducing the marginal cost of taxation. Furthermore, it shows that investors may gain from informational asymmetries. Although asymmetric information increases the uncertainty as perceived by investors, it may also increase tax rates and allow for a higher consumption of public goods. This reflects that asymmetric information may reduce the distortionary effects of competition among governments.
Original languageEnglish
Pages (from-to)219-233
JournalInternational Tax and Public Finance
Publication statusPublished - May 2002
Externally publishedYes

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Capital tax
Asymmetric information
Welfare effects
Equity markets
Tax effects
Tax rate
Investors
Informational asymmetry
Equity
Uncertainty
Marginal cost
Foreign investors
Taxation
Government
Home bias

Cite this

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abstract = "This paper explores the implications of informational asymmetries between domestic and foreign investors for optimal capital tax rates and welfare. It adopts a model in which asymmetric information implies a home bias in equity. The paper finds that asymmetric information may raise capital tax rates by reducing the marginal cost of taxation. Furthermore, it shows that investors may gain from informational asymmetries. Although asymmetric information increases the uncertainty as perceived by investors, it may also increase tax rates and allow for a higher consumption of public goods. This reflects that asymmetric information may reduce the distortionary effects of competition among governments.",
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The capital tax and welfare effects from asymmetric information on equity markets. / Westerhout, Ed.

In: International Tax and Public Finance, 05.2002, p. 219-233.

Research output: Contribution to journalArticleScientificpeer-review

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