Effects of Taxes and Subsidies on Media Services

Abstract

We start out reviewing the justification for press subsidies. The social value of journalism can be larger than what the newspapers are able to extract because of knowledge externalities, public good characteristics of investigative journalism and non-appropriability of consumer surplus. A free market will then underinvest in journalism. Problems related to economies of scale and scope further imply that the number of newspapers and their circulations may be too small, while advertising can give newspapers too strong incentives to aim for the mass market. According to the media economics literature, a preferential VAT regime provides higher differentiation incentives for existing newspapers, while a tax deduction for editorial expenses is well suited to increase journalistic investments. Micro economic theory further indicates that fixed transfers is the most efficient instrument to reduce entry barriers and avoid newspaper mortality, and that a subsidy per copy sold will increase circulation. We end the article by summarizing empirical evidence on the effects of media support.

Journalism as a public good: A Scandinavian perspective

“…A key economic factor causing underproduction of societal news of importance is related to the public character of news, characterised by economists as pure knowledge externalities (Kind and Møen, 2015). An editorial organisation that put time and other resources into covering an interesting case and publishing a news story will soon experience the same news being repeated, disseminated and followed up by other news media, thereby leading to public reactions and discussions (Hamilton, 2004: 9).…”

“…Unfortunately, this indirect subsidy system not only gains the strongest economic actors, but it is not bound to any investment in journalism either. A much better alternative may be tax rules that directly reduce the marginal costs of investing in journalism and stimulate investigative journalism (Kind and Møen, 2015).…”

“…In Section 2, we discuss the media and communication literature about public good attributes and the externalities of journalism. A basic problem is what neoclassical economics describes as market failure -defined as a systematic underinvestment in media content that has positive societal effects (Baker, 2002;Cooper, 2011;Kind and Møen, 2015;McChesney and Nichols, 2010;Pickard, 2015). This is an important argument for public intervention to safeguard media diversity, but seldom a part of the media industry's own policy discussions.…”

Newspapers and public grants: A matter of quality

“…This characteristic of being a public good as well as the peculiar cost structure, with a prominent role of fixed costs, justify the state subsidies for a newspaper to survive without reaching a critical level of revenue from advertising and readers (e.g. Kind and Møen, ). Traditionally, media support has been justified by the claims that widespread reading of newspapers promotes the national language and culture – which may be considered as an investment in human capital – and that a plurality of newspapers is important for freedom of speech and democracy (see e.g.…”

“…Traditionally, media support has been justified by the claims that widespread reading of newspapers promotes the national language and culture – which may be considered as an investment in human capital – and that a plurality of newspapers is important for freedom of speech and democracy (see e.g. Parcu, ; Kind and Møen, ). Furthermore, subsidies help to safeguard press independence against the issue of media capture and media bias .…”