Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 10: Some Welfare and Pricing Implications of Alternative Regimes for Value-Added Taxation of Postal Services
* Philippe De Donder, Helmuth Cremer, Paul Dudley and Frank Rodriguez 1 INTRODUCTION As part of the development towards the full opening of postal markets in Europe, national postal operators (NPOs) face increased competition from postal operators entering the market through access to their networks downstream or bypass of their networks altogether. NPOs typically provide the universal postal service consisting of the daily collection and delivery of mail throughout the country which, in most cases applies through geographically uniform tariﬀs primarily for single-piece mail sold to households.1 Maintaining the price of single-piece mail at a low level is of particular interest for policy makers and regulators (Panzar, 2004). The obligation to provide the universal service requires an NPO to commit to the provision of a national network. The provision of the universal service by an NPO in the presence of access and bypass entry has been analyzed in De Donder et al. (2006). In most European countries NPOs are not required to charge value-added tax (VAT) on postal services2 and are ‘VAT exempt’. By contrast, entrants to the postal market are required to charge VAT and are ‘VAT rated’. This diﬀerence in the tax treatment of NPOs and other postal operators aﬀects the ﬁnal prices oﬀered to their customers in the market and the operation of the market compared to a situation where all operators are subject to the same tax regime. In the wider economy, ﬁrms in some sectors are VAT exempt3 while ﬁrms in other...
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