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Department of Business and Management Science, Norwegian School of Economics (NHH) Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)

No 2014/44:
Effects of taxes and subsidies on media services

Hans Jarle Kind () 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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