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Can Taxes Shape an Industry? Evidence from the Implementation of the “Amazon Tax”

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  • BRIAN BAUGH
  • ITZHAK BEN‐DAVID
  • HOONSUK PARK

Abstract

For years, online retailers have maintained a price advantage over brick‐and‐mortar retailers by not collecting sales tax at the time of sale. Recently, several states have required that online retailer Amazon collect sales tax during checkout. Using transaction‐level data, we document that households living in these states reduced their Amazon purchases by 9.4% following the implementation of the sales tax laws, implying elasticities of –1.2 to –1.4. The effect is stronger for large purchases, where purchases declined by 29.1%, corresponding to an elasticity of –3.9. Studying competitors in the electronics field, we find some evidence of substitution toward competing retailers.

Suggested Citation

  • Brian Baugh & Itzhak Ben‐David & Hoonsuk Park, 2018. "Can Taxes Shape an Industry? Evidence from the Implementation of the “Amazon Tax”," Journal of Finance, American Finance Association, vol. 73(4), pages 1819-1855, August.
  • Handle: RePEc:bla:jfinan:v:73:y:2018:i:4:p:1819-1855
    DOI: 10.1111/jofi.12687
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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