Revenue equivalence and income taxation
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This paper considers the classical independent private values model of auction theory in the presence of income taxation. We show that revenue equivalence remains valid if income taxes are proportional. Progressive and regressive taxes lead, in general, to asymmetries between bidders with the well-known consequence that revenue equivalence no longer holds. However, if symmetry of the bidders is maintained, progressive (regressive) income tax implies a higher (lower) expected revenue in first-price than in second-price auctions.
KeywordsBidding Behavior Auction Theory Additional Profit Revenue Equivalence Theorem Asymmetric Bidder
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