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Taxation by Telecommunications Regulation

In: Tax Policy and the Economy, Volume 12

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  • Jerry Hausman

Abstract

Telecommunications regulation in the U.S. is replete with a system of subsidies and taxes. Because of budgetary spending limits, Congress is unable to increase general taxes to pay for social programs and thus funds these programs from taxes on specific sectors of the economy. In this paper I consider the Congressional legislation which established a program so that all public schools and libraries in the U.S. will receive subsidized service to the Internet. The cost of the program is estimated to be $2.25 billion per year. Congress passed legislation that directed all users of interstate telephone service to pay for the program. Using analytical methods from public finance, I calculate the efficiency cost to the economy of the higher taxation of interstate telephone services to fund the Internet access discounts. I estimate the cost to the economy of raising the $2.25 billion per year to be at least $2.36 billion (in addition to the $2.25 billion of tax revenue), or the efficiency loss to the economy for every $1 raised to pay for the Internet access discounts is an additional $1.05 to $1.25 beyond the money raised for the Internet discounts. This cost to the economy is extremely high compared to other taxes used by the Federal government to raise revenues. I discuss an alternative method by which the FCC could have raised the revenue for the Internet discounts which would have a near zero cost to the economy.
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Suggested Citation

  • Jerry Hausman, 1998. "Taxation by Telecommunications Regulation," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 29-48, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:10912
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    Citations

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    Cited by:

    1. Ward, Michael R., 2007. "Rural Telecommunications Subsidies Do Not Help," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 37(1), pages 1-3.
    2. Eugenio J. Miravete & Katja Seim & Jeff Thurk, 2020. "One Markup to Rule Them All: Taxation by Liquor Pricing Regulation," American Economic Journal: Microeconomics, American Economic Association, vol. 12(1), pages 1-41, February.
    3. Goolsbee, Austan & Klenow, Peter J, 2002. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 317-343, October.
    4. Levin, Stanford Lee & Schmidt, Stephen & Scott, Graham, 2015. "Broadband for all: Policies for a connected society," 2015 Regional ITS Conference, Los Angeles 2015 146346, International Telecommunications Society (ITS).
    5. Biancini, Sara, 2011. "Behind the scenes of the telecommunications miracle: An empirical analysis of the Indian market," Telecommunications Policy, Elsevier, vol. 35(3), pages 238-249, April.
    6. Andrés Gomez-Lobo & Marcela Meléndez, 2006. "La política social de las telecomunicaciones en Colombia," Cuadernos de Fedesarrollo 12707, Fedesarrollo.
    7. Rota-Graziosi, Gregoire & Sawadogo, Fayçal, 2022. "The tax burden on mobile network operators in Africa," Telecommunications Policy, Elsevier, vol. 46(5).
    8. Jerry Hausman, 1999. "Efficiency Effects on the U.S. Economy from Wireless Taxation," NBER Working Papers 7281, National Bureau of Economic Research, Inc.
    9. Grégoire Rota-Graziosi & Fayçal Sawadogo, 2021. "The tax burden on mobile network operators in Africa," CERDI Working papers hal-03118496, HAL.
    10. Goolsbee Austan, 2006. "The Value of Broadband and the Deadweight Loss of Taxing New Technology," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-31, April.
    11. Austan Goolsbee, 2000. "Taxes, High-Income Executives, and the Perils of Revenue Estimation in the New Economy," American Economic Review, American Economic Association, vol. 90(2), pages 271-275, May.
    12. Berg, Sanford V. & Jiang, Liangliang & Lin, Chen, 2011. "Incentives for cost shifting and misreporting: US rural universal service subsidies, 1991–2002," Information Economics and Policy, Elsevier, vol. 23(3), pages 287-295.
    13. Jerry Hausman & William Taylor, 2013. "Telecommunication in the US: From Regulation to Competition (Almost)," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(2), pages 203-230, March.
    14. Austan Goolsbee, 2001. "The Implications of Electronic Commerce for Fiscal Policy (and Vice Versa)," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 13-23, Winter.
    15. Austan Goolsbee & Jonathan Guryan, 2006. "The Impact of Internet Subsidies in Public Schools," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 336-347, May.

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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