The Taxation of Spectrum Rights: Tools for Efficiency and Distribution

Abstract

This paper examines the usual equity arguments for spectrum fees and notes where they may not necessarily achieve their ostensible distributional goals. It highlights the difference between establishing transfers from commercial users to taxpayers and generating net social benefits. The paper reviews the efficiency enhancing potential of fees in a second best context. In particular, it shows how fees could make the private opportunity costs of holding spectrum rights more closely resemble the social opportunity costs in a regulatory environment of substantial transactions costs to subdividing and transferring spectrum assets to higher and better uses. Finally, it reviews instances in which spectrum fees could provide substantial efficiency gains if they replace more distortionary command and control requirements, such as build-out requirements that specify the timing and scope of wireless service deployment. An optimal timing model shows that an ad valorem spectrum tax would unambiguously accelerate the time to build-out.