The incidence of value added tax in the book market in Central and Eastern European Countries

Abstract

Public authorities use value added tax to perform non-fiscal functions. In many countries value added tax rate is decreased on books, because it is assumed that supporting reading this way may lead to higher education level and therefore the social welfare increases. The main objective of the article is to answer the question who really benefits from the lower tax rate. I test the hypothesis that the lower tax rates on books are the higher the rate of return of book publishers is. To test this hypothesis I use panel data for book publishers from Czech Republic, Hungary, Poland and Slovakia over the period 2003 – 2010. In any econometric model set on a single and a multiple linear regression analysis, where the rate of return is a dependent variable, the value added tax rate turns out to be a significant explanatory variable with a negative coefficient.