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Impact of VAT Exemptions in the Postal Sector on Competition and Welfare

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Author Info

  • Helmut Dietl
  • Christian Jaag

    ()

  • Markus Lang
  • Martin Lutzenberger
  • Urs Trinkner

    ()

Abstract

The focus of our paper is on the competitive effects of the proposed VAT regime relative to selected alternatives. We also highlight the welfare effects of various VAT scenarios. While an exempt operator cannot reclaim VAT paid on inputs (relevant for non-labor inputs only) and therefore faces higher costs ceteris paribus, an important fraction of customers of non-exempt operators will not be able to deduct VAT themselves. Hence, the exempt incumbent operator has on the one hand a cost disadvantage, and on the other, a price advantage. The net effect will depend on the fraction of non-labor inputs relative to the fraction of non-rated customers. We report market shares, optimum prices, tax revenue and welfare in a liberalized postal market. The various scenarios differ by the operators’ VAT status. We also take into account the fraction of non-rated customers that cannot deduct VAT themselves. The paper sheds light on the main competitive impact of VAT policies while showing the consequences on overall welfare. We show that the results are very sensitive to the operators’ labor policies. Consequently, VAT exemptions have a different impact in countries with different labor regulations. The comprehensive treatment of competition and welfare enables us to provide guidance on how to resolve the policy trade-off between consumer surplus, government tax revenue, and a level playing field in liberalized postal markets.

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File URL: http://www.swiss-economics.ch/RePEc/files/0022DietlJaagLangLutzenbergerTrinkner.pdf
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Bibliographic Info

Paper provided by Swiss Economics in its series Working Papers with number 0022.

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Date of creation: Jul 2010
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Publication status: Published in Reinventing the postal sector in an electronic age, edited by Crew, M A; Kleindorfer, P R., Cheltenham, UK, 267-280.
Handle: RePEc:chc:wpaper:0022

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Web page: http://www.swiss-economics.ch
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Keywords: Value Added Taxation; Regulation; Post; Competition; Welfare;

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  1. Philippe De Donder & Helmuth Cremer & Paul Dudley & Frank Rodriguez, 2009. "On the Value Added Taxation Status of National Postal Operators," Review of Network Economics, De Gruyter, vol. 8(3), pages 2.
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Cited by:
  1. Christian Jaag, 2010. "Bestimmungsfaktoren für die Wettbewerbsentwicklung in Briefmärkten," Economics Musings 0001, Swiss Economics.
  2. Helmut Dietl & Christian Jaag & Markus Lang & Urs Trinkner, 2010. "Competition and Welfare Effects of VAT Exemptions," Working Papers 0133, University of Zurich, Institute for Strategy and Business Economics (ISU).

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