The Demand for Cinema in Europe: Is Vat Harmonization Desiderable?

There exists an ongoing debate on the necessity to reduce and harmonise VAT on cultural goods across Europe. The purpose of this paper is to provide new insights on this issue by simulating the effects of three different VAT regimes on movie consumption and tax revenues across Europe. To this aim we first estimate the movie demand by applying a modified version of the Becker and Murphy (1988)’s rational additional model to a panel of thirteen European countries over the period 1989-2002. The shortand long-term demand elasticities to price obtained from this model are then used to simulate the different alternatives in VAT rate. Results show that harmonization induces a modest increase in movie consumption across Europe in two of the three regimes, but with an overall reduction in tax revenues.