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Commodities communicate. Consumers choose a consumption bundle both for its intrinsic characteristics and for what this bundle communicates about their qualities to spectators. The authors investigate optimal indirect taxation when consumption choices are motivated by two sorts of concerns: intrinsic consumption and costly signaling. Optimal indirect taxes are introduced into a monotonic signaling game with a finite type space of consumers. They provide sufficient conditions for the uniqueness of the D1 sequential equilibrium in terms of strategies. In the case of pure costly signaling, signaling goods can in equilibrium be taxed without burden and the optimal quantity taxes on these goods are infinite.
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