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Working Papers (2019), ESSEC Business School

Optimal Redistributive Taxation in Credit Markets with Adverse Selection

I study optimal redistributive taxation in credit markets with adverse selection. Under symmetric information, the tax system is non-distortionary and unambiguously benefits high-risk types at the expense of low-risk types. Under asymmetric information, a range of taxes exists that creates Pareto improvements relative to the (zero-tax) market allocation by increasing aggregate investment. For sufficiently high taxes, an increase in the safe interest rate can be accompanied by an increase in investment.

DOSIS, A. (2019). Optimal Redistributive Taxation in Credit Markets with Adverse Selection. ESSEC Business School.