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The Internet as a Tax Haven?

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  • David R. Agrawal

Abstract

If online transactions are tax free, increased online shopping may lower tax rates as jurisdictions seek to reduce tax avoidance; but, if online firms remit taxes, online sales may put upward pressure on tax rates because internet sales help enforce destination-based taxes. I find that higher internet penetration generally results in lower municipal tax rates but raises tax rates in some jurisdictions. The latter effect emerges in states where many online vendors remit taxes. A 1 standard deviation increase in internet penetration lowers local sales taxes in large municipalities by 0.15 percentage points, or 16 percent of the average rate.

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  • David R. Agrawal, 2021. "The Internet as a Tax Haven?," American Economic Journal: Economic Policy, American Economic Association, vol. 13(4), pages 1-35, November.
    • Handle: RePEc:aea:aejpol:v:13:y:2021:i:4:p:1-35
    DOI: 10.1257/pol.20170094
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    3. Fox, William F. & Hargaden, Enda Patrick & Luna, LeAnn, 2022. "Statutory incidence and sales tax compliance: Evidence from Wayfair," Journal of Public Economics, Elsevier, vol. 213(C).
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    5. Agrawal, David R. & Shybalkina, Iuliia, 2023. "Online shopping can redistribute local tax revenue from urban to rural America," Journal of Public Economics, Elsevier, vol. 219(C).
    6. David R. Agrawal, 2023. "Hidden Havens: State and Local Governments as Tax Havens?," CESifo Working Paper Series 10573, CESifo.
    7. David R. Agrawal & William F. Fox, 2021. "Taxing Goods and Services in a Digital Era," National Tax Journal, University of Chicago Press, vol. 74(1), pages 257-301.
    8. David R. Agrawal & William F. Fox, 2017. "Taxes in an e-commerce generation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 903-926, September.
    9. Hiroshi Aiura & Hikaru Ogawa, 2021. "Does E-Commerce Ease or Intensify Tax Competition? Destination Principle vs. Origin Principle," CIRJE F-Series CIRJE-F-1169, CIRJE, Faculty of Economics, University of Tokyo.
    10. David R. Agrawal, 2015. "The Tax Gradient: Spatial Aspects of Fiscal Competition," American Economic Journal: Economic Policy, American Economic Association, vol. 7(2), pages 1-29, May.
    11. Agrawal, David R., 2014. "LOST in America: Evidence on local sales taxes from national panel data," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 147-163.

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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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