Current Issue Summary
March 2023 (Vol. 63, Issue 1)
How Do Taxes on Car Sales Affect Television Advertising Strategies? A Model for Predicting Advertising Intensity around Emissions-Related Tax Changes
When companies are faced with unfavorable tax policy changes, they tend to reduce advertising spending. But that “may not be the optimal advertising strategy,” Yiting Deng (University College London), Min Jiang (Shanghai Normal University), and Xiaodong Jiang (Shanghai University of Finance and Economics), write. “As competitors reduce their advertising efforts, a company might be able to gain a competitive advantage by increasing its advertising effort.” This work builds on an emerging stream of research concerning the impact of tax regulations on business and advertising. Specifically, the researchers examined how changes in sales tax rates on low-emission vehicles impact brands’ television advertising strategies and selection of TV networks and advertising slots. The results have “important economic consequences for the media market, as well as managerial implications for marketers, broadcasters and policymakers.” Among the findings, after the vehicle sales tax rate increased, 61 brands decreased their TV ad spend (the procyclical group), while 29 brands increased their TV ad spend (the countercyclical group). “Estimating the effect of television advertising on sales for these two groups of advertisers separately, the authors find that the countercyclical group seems to have benefited from the increased advertising.”
Among the takeaways:
- “There is a significant relationship between television advertising intensity and the sales tax rate.
- “Advertisers’ demand for advertising slots changes when facing external tax-rate changes.
- “With companies’ procyclical advertising behavior, sales tax can be a highly effective tool to motivate socially desirable consumption.”