Impact of VAT Exemptions in the Postal Sector on Competition and Welfare
University of Zurich Institute for Strategy and Business Economics Working Paper No. 145
15 Pages Posted: 12 Jun 2011
Date Written: November 10, 2010
In most member states of the European Union (EU), universal postal services provided by the incumbent operator are exempt from value added taxes (VAT) on the grounds that they are the “public postal service.” Other postal service providers have to charge VAT at the standard rate. The paper sheds light on the main competitive impact of VAT policies while showing the consequences on overall welfare. We show that the results are very sensitive to the operators’ labor policies. Consequently, VAT exemptions have a different impact in countries with different labor regulations. The comprehensive treatment of competition and welfare enables us to provide guidance on how to resolve the policy trade-off between consumer surplus, government tax revenue, and a level playing field in liberalized postal markets.
Keywords: value-added tax, indirect taxation, tax regulation, tax exemption, universal service obligation, postal sector
JEL Classification: H21, H25, L51, L87
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