Taxation of a digital monopoly platform

• Author: Romain Nijs,Bernard Caillaud,Marc Bourreau
• DOI: http://doi.org/10.1111/jpet.12255
• Date: 01 February 2018
• Published date: 01 February 2018

Received: 22 March 2016 Accepted: 25 April 2017

DOI: 10.1111/jpet.12255

ARTICLE

Taxation of a digital monopoly platform

Marc Bourreau1Bernard Caillaud2Romain De Nijs3

1TelecomParisTech

2ParisSchool of Economics - Ecole des Ponts

ParisTech

3EcolePolytechnique

Thisresearch has been financed by France Strate-

gie,within the general framework of a research

projecton the “Evolution of the Value Created by

theDigital Economy and its Fiscal Consequences,”

signedbetween France Strategie and a consor-

tiumconsisting of PSE, Telecom ParisTech,and

TSE.We have benefited from the hospitality of

CRESTand from comments and discussion with

M.Bacache, P.J.Benghozi, F. Bloch, J. Cremer,G.

Demange,S. Gauthier, L. Gille, J. Hamelin, L. Janin,

J.M.Lozachmeur, F.Manenti, and B. Salanié.

MarcBourreau, Telecom ParisTech,

46rue Barrault, 75013 Paris, France

(marc.bourreau@telecom-paristech.fr).

BernardCaillaud, Paris School of Economics

-Ecole des Ponts ParisTech,Paris, France

(caillaud@pse.ens.fr).

RomainDe Nijs, Department of Economics,

EcolePolytechnique, Palaiseau, France

(romain.de-nijs@polytechnique.edu).

This paper investigatesthe impact on fiscal revenues of taxing a two-

sided monopolistic platform offering personalized services to users

and targeted advertising to sellers, based on the collection of users’

personal data. We show that the introduction of a small tax on data

collection, which has been proposed in the French context by Collin

and Colin, fails to increase fiscal revenues if the value-added tax

(VAT)rate is high enough, due to a tax base interdependence effect

between the two taxes. Under a supermodularity condition on the

platform’s profit function as a function of its prices, this result gen-

eralizes to any per-unit tax. However, in some cases, an ad valorem

tax on subscriptions or on advertising may raisefiscal revenues, irre-

spective of the VATrate, as well as welfare.

1INTRODUCTION

Besides its role as a source of technical and organizational change and as one of the main engines of growth, what is

known as the digital economy has also become a source of major concern for governments, in particular fiscal author-

ities. The major companies in the digital economy are as of today the most profitable firms in the global economy.In

2015, Google earned $74.5 billion in revenue and $23.4 billion of operatingincome. 1Facebook’s stock value has more

than doubled since its initial public offering in 2012, reaching about $300 billion at the end of 2015.2Yet,these giant

companies are well known for their low effective rate oftaxation and for their ability to design worldwide fiscal strate-

gies to take advantage of fiscal competition internationally.

Following the financial crisis, governments faced with severe budget constraintshave launched several initiatives

to be able to capture a larger part of the digital value creation.3In 2014, the OECD published a report on the Base

1Seehttp://www.engadget.com/2016/02/01/google-alphabet-q4-2015-earnings/.

2Seehttps://ycharts.com/companies/FB/market_cap.

3See,among others, the reports written for the French Conseil National du Numérique (2013), for the EC (Gaspar et al., 2014), and for HM Treasury (2014).

Journal of Public Economic Theory.2018;20:40–51. wileyonlinelibrary.com/journal/jpet c

2017 Wiley Periodicals,Inc. 40