Centives has previously covered a thought-experiment about what would happen if countries were to ban advertizing. Now Brad Plumer looked at a study that put some concrete numbers behind the analysis of the relative merits of advertizing:

• Up until 2000 Austria’s eight regions taxed advertizements at different rates. Then in 2000 the central government harmonized tax rates which meant that the tax on advertizing went up in some areas and down in others.
• The first observed effect was a large change in the amount of advertizing in the individual regions. This demonstrates that advertizements are tax-sensitive.
• In some product areas prices went up as the amount of advertizing increased. This suggests that advertizements persuade people to buy products that they don’t necessarily need.
• Overall though prices went down as the amount of advertizing increased. The fall was steepest in food and education products.
• This suggests that on the whole advertizing informs consumers and helps them to make more well-informed decisions about the products they buy.
• This also means that a tax on advertizements ultimately causes prices to rise, as it depresses the amount of advertizing that takes place.

Read more of the numbers behind the study, some important caveats, why this study matters, and why advertizing is a rare case for economists over here.

Source: The Washington Post