Tuesday, July 12, 2005

Cell Phones and Poverty

The Economist looks at how cell phones help growth in the developing world.
Mobile phones have become indispensable in the rich world. But they are even more useful in the developing world, where the availability of other forms of communication--roads, postal systems or fixed-line phones--is often limited. Phones let fishermen and farmers check prices in different markets before selling produce, make it easier for people to find work, allow quick and easy transfers of funds and boost entrepreneurship.... A recent study by London Business School found that, in a typical developing country, a rise of ten mobile phones per 100 people boosts GDP growth by 0.6 percentage points. Mobile phones are, in short, a classic example of technology that helps people help themselves.
The Economist then notes how many governments are charging high taxes on handsets and service. These taxes can be a huge drag on private sector growth, which could be the government's intention. But at least some governments are starting to get it.
Yet there is anecdotal evidence that reducing taxes on handsets can boost government revenues. People would rather pay a small tax on a legal handset than no tax on a smuggled one that cannot be returned if it goes wrong. There are some hopeful signs: India cut its import duty on handsets to 5% last year and plans to scrap it altogether.
It would be a good idea in the US and elsewhere to reduce or eliminate all local and federal taxes on communications. The cost of spectrum licenses, which are required to maximize efficiency, should be the only added government expense of cellular communication.


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