Fiscal and economic aspects of book consumption in the European Union

Abstract

One of the available and yet controversial tools in cultural policy at the national level is the reduction of VAT rates for cultural goods and services. We document the standard and reduced VAT rates in EU-28 countries in the period from 1993 to 2013 and explore the underlying determinants. We further introduce a simple theoretical framework to explain how reduced fiscal rates are expected to decrease prices and increase quantities of the consumed cultural goods and services. We then estimate quantitatively that a decrease in the VAT rate for books by one percentage point is associated with an economically significant drop in the price by 2.6%. Finally, we show the positive effect of a fiscal rate reduction on the book expenditure, where a one percentage point decrease in the VAT rate for books leads to an increase in expenditure by 2.7%.

Reduced Value Added Tax (VAT) Rate on Books as a Tool of Indirect Public Funding in the Cultural Sector

“…This conclusion is extremely important because a frequent economic argument for introducing a lower VAT rate is to allow equal access to goods and services, especially among social groups with lower incomes [45]. Borowiecki and Navarette [44] have proven on the basis of statistical studies that a 1% decrease in the VAT rate results in a 2.7% increase in expenditure on books, which confirms the theory of a decrease in prices and higher book consumption as a result of the reduced VAT rate. Probably a strong impact on the level of book consumption is also exerted by other factors enhancing the expected increase in book sales as a result of implementing a lower VAT rate, such as the unemployment rate, the size of social transfers strengthening the economic status of consumers, geographical factors-higher demand is recorded in big cities with a larger number of bookshops [37,53], and selected groups living in the household-e.g., households with children aged 7-19, single-person households, higher income households are at the forefront of book buyers [37].…”

“…The indirect nature of this tax means that reduced VAT rates cannot be imposed bearing in mind a specific type of books or specific groups of consumers (e.g., those of specific socio-economic status or a certain age) [44], because the preferential rate covers all books published by all entities and purchased by all consumers. This important feature of VAT is criticized as an ineffective and inefficient instrument for supporting cultural consumption [45], especially because it does not take into account the consumer's ability to bear the cost.…”

“…This important feature of VAT is criticized as an ineffective and inefficient instrument for supporting cultural consumption [45], especially because it does not take into account the consumer's ability to bear the cost. However, it is an important instrument of conducting cultural policy in EU countries [44].…”

“…The only question is, how much will the price fall and in what time perspective [32]? Borowiecki and Navarette have calculated that reducing the VAT rate on books by 1 percentage point shows a fall in prices of 0.5 euro [44].…”

“…If the reduction in the VAT rate is not reflected in the price, the difference in VAT rates will be a profit for the producer [44]. Therefore, according to the forecasts for the publishing market in Poland, reduction of VAT on e-books from 23% to 5%, introduced on 1 November 2019, will not result in e-books being cheaper by 18 percentage points, but in publishers' incomes being higher [55].…”