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Research and Development in Culture: A Case for Cross Subsidies in the Arts

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  • Christian Jaramillo

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Abstract

Several types of arguments advocate state involvement in the promotion of culture. Many of them imply some sort of subsidy, usually to non-for-profit firms; none favors taxing cultural events. The tax literature, on the other side, discusses excise taxation on culture only as a way to redistribute income. However, to the extent that culture is a public good, taxing it is undesirable. Why are then excise taxes on public events extant in many countries? This paper argues that the development of profitable artists is analogous to R&D in the industrial organization literature, and that the excise taxation of public cultural events may be part of an efficient policy to fund it. Using a Stackelberg game to model the investment to develop an artist, I find that the optimal tax is a multiple of the expected surplus created by the artist that cannot be appropriated by the investor who funds her, and that progressivity plays a limited role at most.

Suggested Citation

  • Christian Jaramillo, 2009. "Research and Development in Culture: A Case for Cross Subsidies in the Arts," DOCUMENTOS CEDE 005346, UNIVERSIDAD DE LOS ANDES-CEDE.
  • Handle: RePEc:col:000089:005346
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    File URL: http://economia.uniandes.edu.co/publicaciones/dcede2009-04.pdf
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    References listed on IDEAS

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    1. Seaman, Bruce A, 1981. "Economic Theory and the Positive Economics of Arts Financing," American Economic Review, American Economic Association, vol. 71(2), pages 335-340, May.
    2. Throsby, David, 1994. "The Production and Consumption of the Arts: A View of Cultural Economics," Journal of Economic Literature, American Economic Association, vol. 32(1), pages 1-29, March.
    3. Mayshar, Joram, 1991. " Taxation with Costly Administration," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(1), pages 75-88.
    4. James M. Buchanan & Richard A. Musgrave, 1999. "Public Finance and Public Choice: Two Contrasting Visions of the State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262024624, January.
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    More about this item

    Keywords

    Excise taxes; cross subsidies; art; culture; public policy; artist development;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • Z11 - Other Special Topics - - Cultural Economics - - - Economics of the Arts and Literature

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