Monday, October 10, 2005

Another Cell Phone Post

Cell phones are on my mind, particularly since mine broke and I can see about 1/5 of the screen at any given time -- just enough to see who I am calling and allow me to procastinate on buying a new one, so here is another question or two about the mobile phone business.

This article from the Economist (which you have to have a subscription to access yourself) discusses the effect of taxation of mobile-phone services on the adoption of mobile phones in countries around the world. The article is particularly interested in the effect of taxation on the adoption of mobile phones in developing nations because:
"Mobile phones are increasingly recognised as powerful tools in the fight against poverty, since they reduce transaction costs, facilitate entrepreneurship, and substitute for slow, unreliable transport and postal systems."

The conclusion is unsurprising: countries with high tax rates have less mobile phones per capita. In fact, the article says that every 1% decrease in mobile phone taxes would increase mobile phone penetration in a typical developing country.

The question I would be interested in is first of all, why do you think governments single out mobile phone services to tax in the first place? Also, do you think this is an effective tax (in terms of raising a lot of revenue and limiting the loss of efficiency)?

Also, what about the claim that mobile phone services are a powerful tool for fighting poverty? What are some specific ways that mobile phones could help alleviate poverty (perhaps specific examples of the claims in the above quote)? Do you agree that alleviating mobile phone taxes will help the poorest countries of the world?


Kind Kimberly Burky said...

So I was there when your cell phone broke, and I'm still sorry for your loss. It was indeed a sad day for you.

Governments may tax mobile phone services to try to alleviate taxes on the poor. Since generally wealthier people subscribe to cell phone services, the government is thus taxing the wealthier folk in the society. In some ways this tax is effective. For example, it does not place a heavy tax load on the poor people in society like a tax on milk would. However, this tax is ineffective in the sense that the government receives less tax revenue from this because cell phone service in developing countries is a fairly elastic good. Also, there is a fairly large "dead weight loss" as there always is when taxing an elastic good.

I guess cell phone services would help people in developing countries. As opposed to waiting for mail service, a person could instead just call the person that they wished to contact. Thus, maybe the removal of cell phone taxes would be a beneficial thing.


Anonymous said...

Cell Phone services would greatly help developing countries in Africa. Poorer areas that do not have phone lines of any kind have to resort to mail carrier service, which means that communications of any sort dealing with business and trade will always be delayed. Removing cell phone taxes would greatly benfit poorer coutnries because The cell phone allows for business to happen at a signigicantly higher rate. Farmers and merchants
can make trades and other transactions, which leads to higher trade circulation and a much more efficient commercial environment for those actively participating in trade.

David Wyant

Anonymous said...

Cell phones can most certainly have a positive effect on the poor. Real life example: My dad visits factories in China frequently that make shoes for his company. One thing he told me is that all the workers now have cell phones and what they are doing is text messaging each other trying to find what factories pay the most. True story.

Taxing cell phone use is probably not going to work very well, as Kimberly said its generally an elastic good, except for people who use cells as their primary phone service.


Brian Zabell said...

David's right, cells would make efficiency in developing countries so much better, especially in areas without phone lines. Faster communication means faster development.

Taxing the phones in the countries seems like a pretty horrible idea to me though. Cell phone not and never will be an inelastic good, and so a tax would decrease the amount of cells in these countries.

Seems kind of stupid for a developing country to limit the amount of cell phone in the country by taxing them..