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Preferential Taxation of E-Commerce: Imperfectly Competitive Retail Markets and Trade Costs

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Author Info
Bo Sandemann Rasmussen () (Department of Economics, University of Aarhus, Denmark)
Abstract

E-commerce in physical goods enhances the degree of product market competition but leads also to higher trading costs as goods bought through the internet are shipped individually. Do these features of e-commerce support a case for granting preferential tax treatment to online shopping? This is investigated using a model with a domestic monopolistic retailer and foreign competitive producers that can either deliver a physical good to the retailer (ordinary trade) or directly to domestic consumers (e-commerce). Although it is possible to construct cases of strictly positive welfare effects the general result is that granting tax preferences to e-commerce will have ambiguous welfare consequences.

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Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2004-9.

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Length: 29
Date of creation: 21 Sep 2004
Date of revision:
Handle: RePEc:aah:aarhec:2004-9

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Web page: http://www.econ.au.dk/afn/

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Related research
Keywords: E-commerce; imperfect competition; pro-competitive gains; trade diversion; commodity taxation; physical goods; trade costs;

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Find related papers by JEL classification:
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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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. James A. Brander & Paul Krugman, 1983. "A 'Reciprocal Dumping' Model of International Trade," NBER Working Papers 1194, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. 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!]
  3. Huizinga, Harry & Nielsen, Soren Bo, 2003. "Withholding taxes or information exchange: the taxation of international interest flows," Journal of Public Economics, Elsevier, vol. 87(1), pages 39-72, January. [Downloadable!] (restricted)
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  4. 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)
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  5. George Zodrow, 2003. "Network Externalities and Indirect Tax Preferences for Electronic Commerce," Asia-Pacific Financial Markets, Springer, vol. 10(1), pages 79-97, January. [Downloadable!] (restricted)
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  6. Andersen, Torben M. & Rasmussen, Bo Sandemann & Sorensen, Jan Rose, 1996. "Optimal fiscal policy in open economies with labour market distortions," Journal of Public Economics, Elsevier, vol. 63(1), pages 103-117, December. [Downloadable!] (restricted)
  7. Deaton, Angus, 1979. "Optimally uniform commodity taxes," Economics Letters, Elsevier, vol. 2(4), pages 357-361. [Downloadable!] (restricted)
  8. 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)
  9. Freund, Caroline L. & Weinhold, Diana, 2004. "The effect of the Internet on international trade," Journal of International Economics, Elsevier, vol. 62(1), pages 171-189, January. [Downloadable!] (restricted)
  10. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
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