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The Value of Broadband and the Deadweight Loss of Taxing New Technology

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Listed author(s):
  • Goolsbee Austan

    ()

    (U. Chicago, GSB)

Abstract

With fixed costs of developing technology, taxes can generate large efficiency costs by slowing the rate of diffusion and these costs are not accounted for in conventional analyses. This paper illustrates the potential importance of this idea in the context of taxes on broadband Internet access at an early stage of its existence by combining data on individual demand by area with data on supplier entry into those markets. Applying a tax to broadband in 1998 would have reduced the quantity and generated a large deadweight loss in the conventional model but when the analysis accounts for the fixed costs of entering new markets, taxes lead to delayed entry in several markets. In these places, the lost consumer surplus is additional deadweight loss and it more than doubles the true efficiency costs from taxation. The conventional model also dramatically understates the share of the tax burden borne by consumers.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 5 (2006)
Issue (Month): 1 (April)
Pages: 1-31

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Handle: RePEc:bpj:bejeap:v:contributions.5:y:2006:i:1:n:8
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Find related papers by JEL classification:
  • H2 - Public Economics - - Taxation, Subsidies, and Revenue
  • D6 - Microeconomics - - Welfare Economics

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  1. Donald Bruce & John Deskins & William F. Fox, 2004. "Has Internet Access Taxation Affected Internet Use?," Public Finance Review, , vol. 32(2), pages 131-147, March.
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  19. repec:adr:anecst:y:1994:i:34:p:07 is not listed on IDEAS
  20. Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-479, April.
  21. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
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  25. Jerry Hausman, 1998. "Taxation by Telecommunications Regulation," Books, American Enterprise Institute, number 53052.
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