eThesis - School of Business electronic theses

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OBJECTIVES OF THE STUDY:

This study focuses on a tax policy change towards subscribed newspapers in the Finnish newspaper market. The Finnish government decided to increase the value added tax rate of subscribed newspapers from 0 % to 9 %, bringing the legislative changes into force in the beginning of 2012. In earlier research the price elasticity of newspaper demand has been observed to be highly inelastic. The objective of this study is to determine the effects of the 9 % VAT increase on the prices and circulations of subscribed newspapers and to determine whether the price elasticity of newspapers has increased due to the changing newspaper market.

DATA AND METHODOLOGY:

The research is conducted with a difference-in-differences method with controlled individual fixed effects. The Finnish newspaper circulation development is analyzed with newspaper price and circulation panel data from periods 2006-2013 and controlled with corresponding data in the Norwegian market.

FINDINGS OF THE STUDY:

According to the results of the study, the 9 % VAT increase moved fully into newspaper subscription prices. As a result, newspaper circulations showed a 3,4 percent decrease compared to the control group and the newspapers' price elasticity of demand, 0,37, can be seen as highly inelastic. The findings correspond to an estimation in the government proposal as well as findings in previous studies.