Should Utility-Reducing Media Advertising be Taxed?
CESifo, Munich, 2009
CESifo Working Paper No. 2589
![](https://cesifo.org/DocImg/cesifo1_wp2589.jpg?c=1689237142)
Empirical evidence suggests that people dislike ads in media products like TV programs. In such situations standard economic theory prescribes that the advertising volume can be optimally reduced by levying a tax on ads. However, making use of recent advances in the theory of Industrial Organization and two-sided markets we show that taxing ads may be counterproductive. In particular, we identify a number of situations in which ad-adverse consumers are negatively affected by the tax, and we even show that the tax may lead to higher ad volumes. This unorthodox reaction to a tax may arise when consumers significantly dislike ads, i.e. in situations where traditional arguments for corrective taxes are strongest.
Public Finance