Global Spillovers of Taxation in the Online Advertising Market. Theory and Evidence from Facebook

Abstract

We study the effect of corporate taxes on multinational digital platforms and the online global advertising market. Using a novel dataset of advertising prices and user product preferences from Facebook, that we combine with international trade data, we show that an increase in the platform’s corporate tax rate in several countries had a sizeable effect on advertising prices therein. Given the platform’s two-sided and multinational structure, we also document substantial spillovers in the effects of ad prices across countries. The results are consistent with our theoretical model, which shows that, due to consumers’ limited tolerance for ads, the platform reduces the supply of ads to advertisers located in countries where it faces a higher tax rate.

Keywords: Online advertising, Two-sided Platforms, corporate taxes, Pass-through, international trade