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Sales Taxes and Internet Commerce

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Author Info

  • Liran Einav

    ()
    (Stanford University)

  • Jonathan Levin

    ()
    (Stanford University)

  • Neel Sundaresan

    ()
    (Ebay)

Abstract

We estimate the sensitivity of Internet retail purchasing to sales taxes using data from the eBay marketplace. Our Örst approach exploits the fact that seller locations are revealed only after buyers have expressed interest in an item by clicking on its listing. We use millions of location surprises to estimate price elasticities with respect to the e§ective sales tax. We then use aggregated data to estimate cross-state substitution parameters, and substitution between o­ ine and online purchases, relying on the variation in state and local sales taxes, and on changes in these rates over time. We Önd substantial sensitivity to sales taxes. Using our item-level approach, we Önd a price elasticity of around -2 for interested buyers. Using our aggregate approach, we Önd that a one percentage point increase in a stateís sales tax increases online purchases by state residents by just under two percent, but decreases their online purchases from home-state retailers by 3-4 percent.

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Bibliographic Info

Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 11-012.

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Date of creation: Apr 2012
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Handle: RePEc:sip:dpaper:11-012

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References

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  1. Glenn Ellison & Sara Fisher Ellison, 2009. "Tax Sensitivity and Home State Preferences in Internet Purchasing," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 53-71, August.
  2. Looney, Adam & Kroft, Kory & Chetty, Raj, 2009. "Salience and Taxation: Theory and Evidence," Scholarly Articles 9748525, Harvard University Department of Economics.
  3. Austan Goolsbee & Joel Slemrod, 2007. "Playing with Fire: Cigarettes, Taxes and Competition from the Internet," Discussion Papers 07-002, Stanford Institute for Economic Policy Research.
  4. Liran Einav & Theresa Kuchler & Jonathan Levin & Neel Sundaresan, 2011. "Learning from Seller Experiements in Online Markets," Discussion Papers 10-033, Stanford Institute for Economic Policy Research.
  5. Ali Hortaçsu & F. Asís Martínez-Jerez & Jason Douglas, 2009. "The Geography of Trade in Online Transactions: Evidence from eBay and MercadoLibre," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 53-74, February.
  6. James Alm & Mikhail I. Melnik, 2005. "Sales Taxes and the Decision to Purchase Online," Public Finance Review, , vol. 33(2), pages 184-212, March.
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Cited by:
  1. Sumit Agarwal & Leslie McGranahan, 2012. "Spending responses to state sales tax holidays," Working Paper Series WP-2012-10, Federal Reserve Bank of Chicago.
  2. Fox, William F. & Luna, LeAnn & Schaur, Georg, 2014. "Destination taxation and evasion: Evidence from U.S. inter-state commodity flows," Journal of Accounting and Economics, Elsevier, vol. 57(1), pages 43-57.

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