Fiscal and economic aspects of Europe's Cultural Heritage in the Digital Age

Fiscal and Economic Aspects of Europe’s Cultural Heritage

in the Digital Age

ICCA Paris 6-‐7 October 2014

Karol J. Borowiecki Trilce Navarrete

The RICHES ConsorFum

The changing world view

•  Our Fmes (we live in the Digital Age!) are extremely interesFng and very dynamic. – Making now the right choices can/will have effects on future generaFons.

•  Enlarging cultural audiences is of great importance to policy makers, NPOs and individuals.

•  So far, not much has been looked at fiscal policy and how it can be harnessed to achieve the goals of cultural policy.

•  Also: Reduced rate for E-‐books is unique in France!

/RICHES -‐ KICK-‐OFF MEETING 9-‐10th December2013

MoFvaFon

•  Document fiscal rates on cultural goods and services in EU over Fme.

•  Shed some light on the correlates of tax rates. •  A^empt to study the effects of fiscal incencFves. – The impact of reduced rates on:

•  prices of cultural goods and services. •  cultural expenditure of households.


CotribuFon (so far)

Governments support producFon and consumpFon of the arts and culture through direct financing, such as grants and subsidies given to heritage organizaFons or as vouchers given to consumers.

Another form of support takes place through indirect tax rules which have

two main modaliFes: (1)  Tax deducFons to gi`s (also in-‐kind) (2)  Reduced VAT rate (only in EU) Indirect support works as incenFve, therefore it is dependent on the

behaviour of donors, corporaFons and consumers. Reduced VAT rates cannot be specifically directed towards a desired good,

provider, or consumer, unlike direct subsidies. Reduced VAT rates to sFmulate cultural acFviFes has received less academic

a^enFon, compared to the mulFple forms of tax deducFons.


Background


Background Direct government support

Indirect government support


Background Direct government support

Indirect government support

Policy Foun

daFo

ns

Tax law serves to raise revenue for public purposes. It also supports the non-‐profit sector, serves as equity builder through fair redistribuFon, can be used as policy instrument for the public interest, and is a tool to differenFate the profit and non-‐profit sectors (Schuster, 2006).

Tax concessions are obscure, therefore not broadly recognized as a cost to

the state. There is limited documentaFon on tax expenditure on the arts and culture because it is difficult to esFmate costs beforehand, it requires a high level of detailed reporFng, and it is hardly recognized as a state expenditure by the public (O’Hagan, 2003).


Background

The European Commission has established a set of guidelines to harmonize the VAT across Member States.

A reduced VAT rate has been established for a number of goods and services: (1) The transacFon of books, periodicals and magazines not used for

adverFsing; (2) The admission to shows, theater, concerts, museums, cinema and zoos; (3) Services supplied by or royalFes due to writers, composers and

performing arFsts; and (4) Supply of goods and services by chariFes.

(see EC Council DirecFve on VAT 2006)


VAT in EU

The increased use of digital technology for the producFon, distribuFon and consumpFon of cultural goods has raised quesFons on the definiBons used by the VAT DirecFve.

France and Luxemburg disagree with the EC definiFons and have argued for a revision. In 2013, a Public ConsultaFon was conducted to review the VAT legislaFon. Results are promising:

•  It is expected that books will no longer be defined by a carrier but by its informaFon content. In this way, e-‐books can enjoy the same reduced VAT rate as paper books and audio books.

•  The same argument applies for periodicals and other informaFon goods. The performing arts have seen new distribuFon channels, through digital

broadcast technology, i.e., Pathe Opera (Bakhshi and Throsby, 2011). For performing arts, a tax concession would amount to 15-‐20% of box office

income, including for profit companies (O’Hagan, 2003). /RICHES -‐ KICK-‐OFF MEETING 9-‐10th

December2013

VAT in digital EU


The theory -‐ Effects of a sales tax

Price

S

D

Quantity

SStandard rate

P*

Q* QStandard rate

Standard rate

PStandard rate


The theory -‐ Effects of a sales tax

Price

S

D

Quantity

SReduced rate SStandard rate

PReduced rate P*

QReduced rate Q*

Reduced rate Tax = P , Q

PStandard rate

Standard rate

QStandard rate

Tax = DW Loss

•  Fiscal data comes from EC publicaFons on VAT Rates Applied in the Member States of the European Union 1993-‐2014.

•  Data on household expenditure on cultural goods and services are taken from the Household Budget Survey (wave 2005).

–  HBS data are collected according to the COICOP classificaFon adapted to HBS needs (COICOP-‐HBS).

•  Price data comes from the Council of Europe/ERICarts Compendium of Cultural Policies and Trends 2003-‐2013.

–  It covers cultural industries consumer price (e.g., price of books) and public arts services prices (e.g., price of art museum Fckets).

•  Data on internet use comes from Eurostat, Special module of ICT survey 2008: Individuals — Use of advanced services.

•  Data on populaBon size, GDP per capita and educaBonal aKainment obtained from Eurostat and covers 1993-‐2013.


Data sources

•  Fiscal rates in EU over Fme and the correlates •  Fiscal rates and prices •  Fiscal rates and cultural expenditure


Outline of empirical analysis


Standard VAT rates, by country 15

2025

3015

2025

3015

2025

3015

2025

3015

2025

30

1995 2000 2005 2010 2015 1995 2000 2005 2010 2015 1995 2000 2005 2010 2015

1995 2000 2005 2010 2015 1995 2000 2005 2010 2015 1995 2000 2005 2010 2015

Austria Belgium Bulgaria Cyprus Czech Republic Denmark

Estonia Finland France Germany Greece Hungary

Ireland Italy Latvia Lithuania Luxembourg Malta

Netherlands Poland Portugal Romania Slovakia Slovenia

Spain Sweden United Kingdom

Sta

ndar

d V

AT

rate

YearGraphs by country


Reduced rates books, by country 0

1020

300

1020

300

1020

300

1020

300

1020

30

1995 2000 2005 2010 2015 1995 2000 2005 2010 2015 1995 2000 2005 2010 2015

1995 2000 2005 2010 2015 1995 2000 2005 2010 2015 1995 2000 2005 2010 2015






Red

uced

rate

boo

ks

YearGraphs by country


Standard VAT rate, average 18

1920

2122

Sta

ndar

d ra

te

1995 2000 2005 2010 2015Year

EU EU of 1993 (constant sample)


Standard VAT rate, average 18

1920

2122

Sta

ndar

d ra

te

1995 2000 2005 2010 2015Year

EU EU of 1993 (constant sample) France


Reduced rate books 2

46

8

Red

uced

rate

boo

ks

1995 2000 2005 2010 2015Year

EU countries EU countries of 1993 (balanced sample) France


Reduced rate newspapers

24

68

Red

uced

rate

new

spap

ers

1995 2000 2005 2010 2015Year

EU EU of 1993 (constant sample) France

Reduced rate periodicals, admission to cultural services, TV license, supplies by creators

24

68

Red

uced

rate

per

iodi

cals

1995 2000 2005 2010 2015Year

EU EU of 1993 France

46

810

Red

uced

rate

adm

issi

on to

cul

tura

l ser

vice

s

1995 2000 2005 2010 2015Year


05

1015

20

Red

uced

rate

TV

lice

nse

1995 2000 2005 2010 2015Year


68

1012

14

Red

uced

rate

sup

plie

s by

cre

ator

s

2000 2005 2010 2015Year



Reduced rate E-‐books

510

1520

Red

uced

rate

E-b

ooks

2010 2011 2012 2013 2014Year

EU France

(1) (2) (3) (4) (5) (6) (7) Reduced rate Reduced rate Reduced rate Reduced rate Reduced rate Reduced rate

VAT standard rate Books Newspapers Periodicals

Admission to cultural services TV license

Supplies by creators

log(population) -8.504*** -8.191 -29.32*** -30.52*** 5.189 15.37 0.831

(1.913) (5.324) (4.373) (7.193) (9.047) (9.851) (6.643) GDP per capita -0.0576*** -0.0244 0.126*** 0.0691 0.0753 -0.0208 -0.0688

(0.0160) (0.0444) (0.0365) (0.0600) (0.0754) (0.0770) (0.0668) Share of mid or high educational attainment (15-64 ages)

0.0469*** 0.149*** 0.0745** 0.174*** -0.383*** -0.0979 -0.165**

(0.0159) (0.0441) (0.0362) (0.0596) (0.0751) (0.0754) (0.0702)

Year FE yes yes yes yes yes yes yes Country FE yes yes yes yes yes yes yes

Observations 409 409 409 409 406 366 313 R-squared 0.906 0.852 0.843 0.796 0.696 0.823 0.864 Number of years 21 21 21 21 21 21 14 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1


Correlates of tax rates (EU, 1993-‐2013)


Reduced rate and price of books

AT

BE

BG

CY

CZ

DE

DK

EE

ELES

FI

FRHU

IE

IT

LT

LV

MTNL

PL

PT

RO

SE

SI

SK

UK05

1015

2025

Red

uced

rate

boo

ks

10 20 30 40Price of books

Reduced rates and book prices, by country

1020

3040

5010

2030

4050

1020

3040

5010

2030

4050

1020

3040

50

010

2030

010

2030

010

2030

010

2030

010

2030

1995 2000 2005 2010 2015 1995 2000 2005 2010 2015 1995 2000 2005 2010 2015

1995 2000 2005 2010 2015 1995 2000 2005 2010 2015 1995 2000 2005 2010 2015






Reduced rate books Price books

Year

Graphs by country


Prices and reduced tax rates (EU, 2003-‐2013) (1) (2) (3) (4)

Book price Museum price Opera price Cinema price Reduced rate books 0.504*

(0.260) Reduced rate admission to cultural services

0.0685* 0.570** -0.0187

(0.0380) (0.242) (0.0303) log(population) 1.026 0.290 155.4*** 13.02**

(1.285) (1.442) (48.56) (4.134) GDP per capita 0.643*** 0.597*** 2.875*** 0.341**

(0.160) (0.166) (0.611) (0.107)

Share of mid or high educational attainment (15-64 ages) -0.455*** 0.164 -0.391 0.0561

(0.101) (0.202) (0.467) (0.0716)

Year FE yes yes yes yes Country FE yes yes yes yes

Observations 169 172 178 180 R-squared 0.692 0.735 0.858 0.760 Number of year 10 10 10 10 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1


Expenditure on books

AT

BECYCZ

DK

EE

FI

FR

DE

ELHU

IE

ITLVLT

LU

MTNL

PL

PT

SK

SI

ES

SE

UK05

1015

2025

Red

uced

rate

boo

ks

0 50 100 150 200 250Expenditure on books per household

Expenditure and trade of books

AT

BECYCZ

DK

EE

FIFR

DEELHU

IE

ITLVLTLU

MT NL

PL

PT

SK

SI

ESSE

UK05

1015

2025

Red

uced

rate

boo

ks

0 50 100 150 200 250Expenditure on books per household

AT

BECYCZ

DK

EE

FIFR

DEELHU

IE

ITLVLTLU

MT NL

PL

PT

SK

SI

ESSE

UK05

1015

2025

Red

uced

rate

boo

ks

5 10 15 20 25Share of cultural expenditure on books

AT

BE

BG

CY

CZ

DK

EEFIFR

DEELHU

IE

IT

LV

LT

LUMT NL

PL

PT

RO SKSI

ESSE

UK05

1015

2025

Red

uced

rate

boo

ks

0 10 20 30 40Exports of books

AT

BE

BG

CY

CZ

DK

EE FIFR

DEELHU

IE

IT

LV

LT

LUMT NL

PL

PT

ROSKSI

ESSE

UK05

1015

2025

Red

uced

rate

boo

ks

0 20 40 60 80 100Imports of books


Use of internet to purchase books

AT

BE

BG

CY

CZ

DK

EEFI

FR

DE

EL HU

IE

IT

LV

LT

LU

MTNL

PL

PT

ROSK

SI

ES

SE

UK05

1015

2025

Red

uced

rate

boo

ks

0 10 20 30 40Use of the Internet to purchase books

Expenditure and trade of newspapers

AT

BE

CYCZ

DK

EE

FIFR

DE

EL

HUIE

ITLVLT

LUMT

NLPL

PT

SK

SI

ESSE

UK05

1015

20

Red

uced

rate

new

spap

ers

0 100 200 300Expenditure on newspapers per household

AT

BE

CYCZ

DK

EE

FIFR

DE

EL

HUIE

ITLVLT

LUMT

NLPL

PT

SK

SI

ESSE

UK05

1015

20

Red

uced

rate

new

spap

ers

5 10 15 20 25Share of cultural expenditure on books

AT

BE

BG

CY

CZ

DK

EE

FIFR

DE

ELHU

IE

IT

LV

LT

LUMT

NLPL

PT

RO

SK

SI

ESSE

UK05

1015

20

Red

uced

rate

new

spap

ers

0 5 10 15 20 25Exports of newspapers

AT

BE

BG

CY

CZ

DK

EE

FIFR

DE

ELHU

IE

IT

LV

LT

LUMT

NLPL

PT

RO

SK

SI

ESSE

UK05

1015

20

Red

uced

rate

new

spap

ers

0 20 40 60Imports of newspapers

Reduced rate admission to cultural services

ATBE

BG

CY

CZ

DK

EE

FI

FR

DE

EL

HU

IE

IT

LVLT

LU

MTNL

PL

PT

SK

SI

ES

SE

UK

010

2030

Red

uced

rate

adm

issi

on to

cul

tura

l ser

vice

s

20 40 60 80Have attended live perfomance arts

AT BECY

CZ

DK

EE

FI

FR

DE

HU

IE

IT

LV

LT

LU

MT

NLPL

PT

SK

SI

ES

SE

UK

010

2030

Red

uced

rate

adm

issi

on to

cul

tura

l ser

vice

s

0 50 100 150Expenditure on cinema, theatres or concerts

Average annual expenditure on cultural goods and services per household, 2005 (PPS)

AT

BE

CZ

DK

EE

FI

FR

DE

EL

HU

IE

IT

LVLT

LU

MT

NL

PL

PT

SK

SI

ES

SE

UK

510

1520

25

Red

uced

rate

cre

ator

s

0 500 1000 1500 2000Expenditure on cultural goods and services

Fiscal incentive for creators

AT

BE

CY

CZ

DK

EE

FI

FR

DE

EL

HU

IE

IT

LVLT

LU

MT

NL

PL

PT

SK

SI

ES

SE

UK

1520

2530

Stan

dard

VAT

rate

0 500 1000 1500 2000Expenditure on cultural goods and services

Placebo

Use of Internet for leisure acFviFes related to obtaining and sharing audiovisual content, 2008 (% of Internet users)

AT

BE

BG

CY

CZ

DK

EE

FI

FR

DE

ELHU

IE

IT

LV

LT

LU

MT

NL

PL

PT

RO

SK

SI

ES

SE

UK05

1015

20

Red

uced

rate

new

spap

ers

10 20 30 40Use of Internet to post messages

AT

BG

CY

CZ

DK

EE

FI

FR

DEEL HUIE

IT

LT

LUMT NL

PL

PT

RO

SK SI

ES

SEUK05

1015

2025

Red

uced

rate

TV

lice

nse

10 20 30 40 50Use of Internet to watch movies


What about causality?

•  CorrelaFon does not imply causality! – The associaFon could be reverse: countries with high cultural consumpFon decide on lower tax rates.

– Fiscal rates could be endogeneous and depend on some other variable (e.g., wealth of a country).

– Furthermore, our analysis are subject to omi^ed variable biases.

•  Try to use instrumental variable to shed light on causality.


Instrumental variables proposal

•  Use standard VAT rate as an instrument for reduced rates for books.

•  Policy makers do not consider book consumpFon when deciding on VAT rates.

•  And yet, reduced rates for books are supposedly related to the standard VAT rate. – The reduced rates are likely in proporFon to the standard rate.


The causal impact of reduced rates on book expenditure (1) (2)

Reduced rate books (First-stage OLS)

Expenditure books (IV)

Standard VAT rate 0.467***

(0.145) Reduced rate books -2.778**

(1.303) log(population) -4.218 -0.839

(5.398) (4.379) GDP per capita 0.00246 3.442***

(0.0446) (0.549)

Share of mid or high educational attainment (15-64 ages)

0.127*** -0.644

(0.0441) (0.468)

Year FE yes yes

Country FE yes yes

Observations 409 25 R-squared 0.856 0.712 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

•  We study whether (and how) fiscal policy can sFmulate consumpFon of Europe’s cultural heritage in the Age of DigitalisaFon. So far by: – DocumenFng fiscal rates on cultural goods and services in EU over Fme.

– Sheding some light on the correlates of tax rates. – A^empFng to study the effects of fiscal incencFves.

•  The impact of fiscal rates on prices and expenditure.


Conclusions

•  Study the impact on producBon of cultural goods and services (e.g., the role of reduced rates for creaters).

•  Look at other forms of subsidy, as those affect the overall picture as well (e.g., significant funding of the film industry in Denmark).

•  Complement this aggregate analysis with specific case-‐studies to understand the mechanisms behind the pa^erns disclosed here. –  With a parFcular focus on the changes brought by digiBsaBon.


Future work

DigiFzed visual arts, on the other hand, are increasingly being made available free of charge, at insFtuFonal websites or in portals such as Europeana, exponenFally increasing consumpFon.


VAT in digital EU

InternaBonal Transdisciplinary Workshop Cultural Industries


InternaBonal Transdisciplinary Workshop Cultural Industries

Karol J. Borowiecki ([email protected]) Trilce Navarrete ([email protected])

Thank you!

Fiscal and economic aspects of Europe's Cultural Heritage in the Digital Age

Economy & Finance

Transcript of Fiscal and economic aspects of Europe's Cultural Heritage in the Digital Age