Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
Hans Jarle Kind
Effects of taxes and subsidies on media services
() and Jarle Møen
Abstract: We start out reviewing the justification for press
subsidies. The social value of journalism can be larger than what the
newspapers are able to extract because of knowledge externalities, public
good characteristics of investigative journalism and nonappropriability of
consumer surplus. A free market will then underinvest in journalism.
Problems related to economies of scale and scope further imply that the
number of newspapers and their circulations may be too small, while
advertising can give newspapers too strong incentives to aim for the mass
market. According to the media economics literature, a preferential VAT
regime provides higher differentiation incentives for existing newspapers,
while a tax deduction for editorial expenses is well suited to increase
journalistic investments. Micro economic theory further indicates that
fixed transfers is the most efficient instrument to reduce entry barriers
and avoid newspaper mortality, and that a subsidy per copy sold will
increase circulation. We end the article by summarizing empirical evidence
on the effects of media support.
Keywords: Media support; Two sided markets; VAT exemption; Tax credit; Direct and indirect subsidies; (follow links to similar papers)
JEL-Codes: H00; H20; (follow links to similar papers)
45 pages, December 19, 2014
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