Scandinavian Working Papers in Economics

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

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

Hans Jarle Kind () and Jarle Møen ()
Additional contact information
Hans Jarle Kind: Dept. of Economics, Norwegian School of Economics, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Jarle Møen: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway

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

JEL-codes: H00; H20

45 pages, December 19, 2014

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