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The impact of sales tax on internet and catalog sales: Evidence from a natural experiment

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  • Hu, Yu Jeffrey
  • Tang, Zhulei

Abstract

This paper studies the effect of sales tax changes on internet and catalog sales. We collect sales data from a retailer that sells its products through its internet and catalog channels. We analyze the retailer's sales before and after a major tax cut in one of the largest metropolitan areas in the U.S. This natural experiment allows us to separate the effect of the tax cut from the effect of other confounding factors. The results from our panel data analyses indicate that remote sales have decreased by about 15% in response to a four percentage point decrease in sales tax. Our results are statistically significant and highly robust. Interestingly, we also find that the effect of the tax cut varies across different types of consumers, products, and channels. These findings have important managerial and public policy implications.

Suggested Citation

  • Hu, Yu Jeffrey & Tang, Zhulei, 2014. "The impact of sales tax on internet and catalog sales: Evidence from a natural experiment," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 84-90.
    • Handle: RePEc:eee:indorg:v:32:y:2014:i:c:p:84-90
    DOI: 10.1016/j.ijindorg.2013.11.003
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    Cited by:

    1. Mallick Hossain, 2020. "A World Without Borders Revisited: The Impact of Online Sales Tax Collection on Shopping and Search," Working Papers 20-34, Federal Reserve Bank of Philadelphia.
    2. Anil Arya & Brian Mittendorf, 2018. "Bricks-and-Mortar Entry by Online Retailers in the Presence of Consumer Sales Taxes," Management Science, INFORMS, vol. 64(11), pages 5220-5233, November.
    3. Birg, Laura, 2018. "Cross-border or Online - Tax Competition with Mobile Consumers under Destination and Origin Principle," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181645, Verein für Socialpolitik / German Economic Association.
    4. Wei Han, 2020. "The analysis on Chinese e-commerce tax losses based on the perspective of information asymmetry," Electronic Commerce Research, Springer, vol. 20(3), pages 651-677, September.
    5. Mallick Hossain, 2022. "A world without borders revisited: Impact of online sales tax collection on shopping and search," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(1), pages 48-63, February.
    6. An Chen & Yusha Chen & Finbarr Murphy & Wei Xu & Xian Xu, 2023. "How does the insurer's mobile application sales strategy perform?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(2), pages 487-519, June.

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    More about this item

    Keywords

    Electronic commerce; Internet sales; Sales tax; Price elasticity;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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