Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 16/2011: Newspaper Differentiation and Investments in Journalism: The Role of Tax Policy.

Hans Jarle Kind (), Guttorm Schjelderup () and Frank Stähler ()
Additional contact information
Hans Jarle Kind: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Guttorm Schjelderup: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
Frank Stähler: University of Würzburg, Postal: University of Würzburg, Würzburg

Abstract: Many countries levy reduced-rate indirect taxes on newspapers, with proclaimed policy goals of stimulating investment in journalism and ensuring low newspaper prices. However, by taking into account the fact that the media industry operates in two-sided markets, we find the paradoxical result that the consequences of a low-tax regime might be quite the opposite; low investments and high prices. We also show that the low-tax regime tends to increase newspaper differentiation. If the advertising market is relatively small, the newspapers might invest too little in journalism and be too differentiated from a social point of view. In this case a tax increase will be welfare-enhancing.

Keywords: Two-sided markets; ad-valorem taxes.

JEL-codes: D04; D43; H21; H22; L13

26 pages, September 8, 2011

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