Newspaper Differentiation and Investments in Journalism: The Role of Tax Policy

Abstract

Newspapers are considered to be important providers of information, culture and language, and are taxed at a reduced VAT rate in most countries. This paper shows that such a policy may a¤ect newspaper differentiation and lead to greater media bias. We further show that a reduced-rate VAT scheme may lead to higher newspaper prices and less investment in journalism. These results are obtained by explicitly taking into account the fact that newspapers operate in two sided markets, where they raise revenue both from readers and advertisers.