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Effects of taxes and subsidies on media services

Kind, Hans Jarle; Møen, Jarle
Working paper
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URI
http://hdl.handle.net/11250/273339
Date
2014-12
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  • Discussion papers (FOR) [509]
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 non‐appropriability 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.
Publisher
FOR
Series
Discussion paper;44/14

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