Tax on unaddressed advertisements will increase food prices

Tax on unaddressed advertisements will increase food prices

April 13, 2015

In a recent study commissioned by FK Distribution, Copenhagen Economics has analysed the link between a tax on unaddressed advertisements and food prices.


In economic terms, unaddressed advertisement are, by nature, informative. They inform consumers about the objective characteristics of a product: its properties, country of origin, and price. Both the economic literature and all the empirical evidence agrees that informative advertisements stimulate competition and drive down prices, even when  taking into consideration the costs of producing the same advertisements. This stands in sharp contrast to image advertisement, which have the opposite effect of increasing prices, as they try to associate feelings and emotional value with particular products.


A recent academic study on advertisement tax in Austria enabes us to judge how the introduction of an advertisement tax could change food prices, if similarly applied to the Danish context. In Austria, an increase of 9.5 percent on advertisement tax lowers the use of advertisements in all sectors, but the impact on prices differs significantly between sectors. In sectors primarily using image advertisements, prices went down with fewer adverts. But in sectors primarily using informative advertisements (such as the food sector), prices went up with fewer adverts. Austrian experience suggests that a Danish household with two children would have to pay 2,500-3,000 kroner extra per year due to higher food prices from a tax on unaddressed adverts of 15 percent.


See the study here  

For more information contact partner, Claus Kastberg Nielsen