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Network Externalities and Indirect Tax Preferences for Electronic Commerce

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Author Info
George Zodrow ()

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Abstract

Although most arguments supporting preferential tax treatment of electronic commerce are suspect, the existence of network externalities provides one potentially defensible rationale. This paper considers (1) direct network externalities, which arise in communications networks like the Internet, (2) indirect network externalities, which arise in computer hardware/software systems in imperfectly competitive markets, and (3) learning network externalities, which arise when existing network participants assist new users. It concludes the case for preferential treatment is weak, and that proposed blanket sales tax exemptions of remote (or all) e-commerce are especially inappropriate. Finally, the paper comments briefly on US sales tax reform efforts. Copyright Kluwer Academic Publishers 2003

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File URL: http://hdl.handle.net/10.1023/A:1022281013965
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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 10 (2003)
Issue (Month): 1 (January)
Pages: 79-97
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Handle: RePEc:kap:apfinm:v:10:y:2003:i:1:p:79-97

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Web page: http://springerlink.metapress.com/link.asp?id=102851

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Related research
Keywords: network externalities; taxation of electronic commerce; Internet taxation; sales tax reform;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. David Altig & Peter Rupert, 1999. "Growth and the internet: surfing to prosperity?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep 1. [Downloadable!]
  2. Goolsbee, Austan & Klenow, Peter J, 2002. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," Journal of Law & Economics, University of Chicago Press, vol. 45(2), pages 317-43, October.
    Other versions:
  3. Donald Bruce & William Fox & Matthew Murray, 2003. "To Tax Or Not To Tax? The Case Of Electronic Commerce," Contemporary Economic Policy, Western Economic Association International, vol. 21(1), pages 25-40, 01. [Downloadable!] (restricted)
  4. Richard Bird & Pierre-Pascal Gendron, 2000. "CVAT, VIVAT, and Dual VAT: Vertical ``Sharing'' and Interstate Trade," International Tax and Public Finance, Springer, vol. 7(6), pages 753-761, December. [Downloadable!] (restricted)
  5. Austan Goolsbee, 2000. "In A World Without Borders: The Impact Of Taxes On Internet Commerce," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 561-576, May. [Downloadable!] (restricted)
    Other versions:
  6. Liebowitz, S J & Margolis, Stephen E, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-50, Spring. [Downloadable!] (restricted)
  7. Jonathan Coppel, 2000. "E-Commerce: Impacts and Policy Challenges," OECD Economics Department Working Papers 252, OECD, Economics Department. [Downloadable!]
  8. Katz, Michael L & Shapiro, Carl, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring. [Downloadable!] (restricted)
  9. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December. [Downloadable!]
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  10. Nicholas Economides & Charles Himmelberg, 1995. "Critical Mass and Network Size with Application to the US Fax Market," Working Papers 95-11, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  11. Jeffrey K. MacKie-Mason & Hal R. Varian, 1994. "Some Economics of the Internet," Computational Economics 9401001, EconWPA. [Downloadable!]
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  12. Charles McLure, 1999. "Electronic Commerce and the State Retail Sales Tax: A Challenge to American Federalism," International Tax and Public Finance, Springer, vol. 6(2), pages 193-224, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bo Sandemann Rasmussen, 2004. "Preferential Taxation of E-Commerce: Imperfectly Competitive Retail Markets and Trade Costs," Economics Working Papers 2004-9, School of Economics and Management, University of Aarhus. [Downloadable!]
  2. Ligthart, J.E., 2004. "Consumption taxation in a digital world : a primer," Discussion Paper 102, Tilburg University, Center for Economic Research. [Downloadable!]
  3. Bo Sandemann Rasmussen, 2004. "On the Possibility and Desirability of Taxing E-Commerce," Economics Working Papers 2004-8, School of Economics and Management, University of Aarhus. [Downloadable!]
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