Karol J. Borowiecki
() and Trilce Navarrete
Karol J. Borowiecki: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark
Trilce Navarrete: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark
Abstract: One of the available and yet underappreciated tools in cultural policy at the national level is the reduction of VAT rates for cultural goods and services. We document the standard and reduced VAT rates in EU-28 countries in the period from 1993 to 2013 and explore the underlying determinants. We further introduce a simple theoretical framework to explain how reduced fiscal rates are expected to decrease prices and increase quantities of the consumed cultural goods and services. We then estimate quantitatively that a decrease in the VAT rate for books by one percentage point is associated with an economically significant drop in the price by 2.6 percent. Finally, we show the positive effect of a fiscal rate reduction on the book expenditure of well-off households, where a one percentage point decrease in the VAT rate for books leads to an increase in expenditure by 2.7 percent.
29 pages, April 15, 2015
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