The Taxman Calls. How Does Facebook Answer? Global Effects of Taxation on Online Advertising

45 Pages Posted: 11 Oct 2017

See all articles by Ángel Cuevas

Ángel Cuevas

Universidad Carlos III de Madrid

Ruben Cuevas

Universidad Carlos III de Madrid

Andrea Lassmann

ETH Zürich - KOF Swiss Economic Institute

Federica Liberini

ETH Zürich - KOF Swiss Economic Institute

Antonio Russo

ETH Zürich - KOF Swiss Economic Institute

Date Written: September 30, 2017

Abstract

We study the effects of the taxation of digital platforms on the online advertising market. We exploit novel data on daily unit prices of Facebook ads targeted to country-specific audiences, collected around a major change in the firm’s accounting practices following the introduction of the UK Diverted Profit Tax. We show that a substantial increase in ads prices followed such change, although with heterogeneous intensity across countries. These results are in line with a model of a platform operating in the global advertising market. We show that taxation of profits generated in one country makes the price charged to advertisers from that country (resp. other countries) increase (decrease). Accordingly, we demonstrate that aggregate advertising prices in OECD countries increased more, after the policy change, the larger is the market share of UK-based advertisers.

Keywords: Tax Incidence, Digital Economy, Online Advertising

JEL Classification: H22, H25, F16

Suggested Citation

Cuevas, Ángel and Cuevas, Ruben and Lassmann, Andrea and Liberini, Federica and Russo, Antonio, The Taxman Calls. How Does Facebook Answer? Global Effects of Taxation on Online Advertising (September 30, 2017). NET Institute Working Paper No. 17-09, Available at SSRN: https://ssrn.com/abstract=3049361 or http://dx.doi.org/10.2139/ssrn.3049361

Ángel Cuevas

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Ruben Cuevas

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Andrea Lassmann

ETH Zürich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

Federica Liberini

ETH Zürich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

Antonio Russo (Contact Author)

ETH Zürich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

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