Advertising Expenditure and Consumer Prices

Ferdinand Rauch

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper studies the effect of a change in the marginal costs of advertising on advertising expenditures of firms and consumer prices across industries. It makes use of a unique policy change that caused a decrease of the taxation on advertising expenditures in parts of Austria and a simultaneous increase in other parts. Advertising expenditures move immediately in the opposite direction to the marginal costs of advertising. Simultaneously the price reaction to advertising is negative in some industries (food, education) and positive in other industries (alcohol, tobacco, transportation, hotels and restaurants), depending on the information content of advertising. The paper reconciles these findings using a model that contains informative and persuasive forces of advertising.

Keywords: Advertising; taxation of advertising; effects of advertising (search for similar items in EconPapers)
JEL-codes: H25 M37 (search for similar items in EconPapers)
Date: 2011-08
New Economics Papers: this item is included in nep-agr, nep-com and nep-mkt
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Related works:
Journal Article: Advertising expenditure and consumer prices (2013)
Working Paper: Advertising expenditure and consumer prices (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1073

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