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Newspaper Differentiation and Investments in Journalism: The Role of Tax Policy

Many countries levy reduced-rate indirect taxes on newspapers, with proclaimed policy goals of stimulating investment in journalism and ensuring low newspaper prices. However, by taking into account the fact that the media industry operates in two-sided markets, we find the paradoxical result that the consequences of a low-tax regime might be quite the opposite; low investments and high prices. We also show that the low-tax regime tends to increase newspaper differentiation. If the advertising market is relatively small, the newspapers might invest too little in journalism and be too differentiated from a social point of view. In this case a tax increase will be welfare-enhancing.

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Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 16/2011.

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Length: 26 pages
Date of creation: 08 Sep 2011
Date of revision:
Handle: RePEc:hhs:nhheco:2011_016
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