Taxation and Durable Goods Monopoly

This paper studies the role of taxation in durable good markets with dynamic monopolies. By conditioning the marginal tax rate on the volume of trade, the social planner can provide incentives for the monopolist to abandon sequential screening and clear the market immediately in unique equilibrium and independently of the discount factor. The first-best tax policy can be designed to satisfy budget neutrality, to accommodate a planner with imperfect knowledge of the market conditions, and to guarantee the seller's participation in absence of rational expectations. We also explore the role of small, constant transaction tax and discuss policy implications of our results, especially in relation to the recent vacancy tax in housing markets