Impact of VAT Exemptions in the Postal Sector on Competition and Welfare
AbstractThe 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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Bibliographic InfoPaper provided by Swiss Economics in its series Working Papers with number 0022.
Date of creation: Jul 2010
Date of revision:
Publication status: Published in Reinventing the postal sector in an electronic age, edited by Crew, M A; Kleindorfer, P R., Cheltenham, UK, 267-280.
Value Added Taxation; Regulation; Post; Competition; Welfare;
Other versions of this item:
- Helmut Dietl & Christian Jaag & Markus Lang & Martin Lutzenberger & Urs Trinkner, 2010. "Impact of VAT Exemptions in the Postal Sector on Competition and Welfare," Working Papers 0145, University of Zurich, Institute for Strategy and Business Economics (ISU).
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
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- De Donder Philippe & Cremer Helmuth & Dudley Paul & Rodriguez Frank, 2009.
"On the Value Added Taxation Status of National Postal Operators,"
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- Cremer, Helmuth & De Donder, Philippe & Dudley, Paul & Rodriguez, Frank, 2009. "On the Value Added Taxation Status of National Postal Operators," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
- Dietl Helmut M & Jaag Christian & Lang Markus & Trinkner Urs W.O., 2011.
"Competition and Welfare Effects of VAT Exemptions,"
The B.E. Journal of Economic Analysis & Policy,
De Gruyter, vol. 11(1), pages 1-29, April.
- Helmut Dietl & Christian Jaag & Markus Lang & Urs Trinkner, 2010. "Competition and Welfare Effects of VAT Exemptions," Working Papers 0024, Swiss Economics, revised Oct 2010.
- 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).
- Christian Jaag, 2010. "Bestimmungsfaktoren für die Wettbewerbsentwicklung in Briefmärkten," Economics Musings 0001, Swiss Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Jaag).
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