A presentation by Johannes Kasinger, Tilburg School of Economics and Management, Tilburg University; Leibniz Institute for Financial Research SAFE.
Several European countries have introduced Digital Services Taxes (DSTs) on domestic advertising revenues of large digital platforms such as Google, aiming to increase tax revenues from these platforms. This paper examines whether the burden of these taxes is borne by platforms (as intended by governments) or passed on to advertisers through higher advertising prices. Using a novel advertiser-level panel dataset on Google Ads spending, prices, and clicks across 29 European countries from 2018 to 2022, and exploiting the staggered introduction of tax surcharges on advertisers‘ invoices in a difference-in-differences framework, we find that advertisers bear a substantial share of the tax burden. Following the introduction of the surcharge, effective costs per click increased by approximately 3.4% within six months, consistent with near-complete pass-through of the tax. These results indicate that, while DSTs generate considerable tax revenues, their incidence falls largely on domestic advertisers rather than on digital platforms. Additional evidence on the mechanisms suggests that advertisers largely maintain their tax-exclusive ad budgets and receive a similar number of clicks as before the reform, implying higher effective prices per click after the surcharge. This pattern is consistent with advertisers‘ underreaction to surcharges that are added ex post to monthly invoices.
This event is part of the Political Economy Lunch Seminar series.
