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The Impact of Internet Sales Tax in a Search Model of Money: Some Analytical Results

Author

Listed:
  • Tiantian Dai

    (China Economics Management Academy, Central University of Finance and Economics)

  • Shenyi Jiang

    (China Economics Management Academy, Central University of Finance and Economics)

  • Xiangbo Liu

    (Renmin University of China and International Monetary Institute (IMI))

  • Wen Wang

    (Department of Economics, Duke University)

Abstract

We use a search-theoretic model to study the impact of internet sales taxes, in both lump-sum and proportional fashions. We show that both forms of taxes, especially the lump-sum tax, have real effects on the online market if the terms of trade are negotiable, while a proportional tax distorts the economy further. We then propose a preferential tax policy and show that it together with a lump-sum internet sales tax can recover the first best. We also give some policy suggestions.

Suggested Citation

  • Tiantian Dai & Shenyi Jiang & Xiangbo Liu & Wen Wang, 2016. "The Impact of Internet Sales Tax in a Search Model of Money: Some Analytical Results," Annals of Economics and Finance, Society for AEF, vol. 17(1), pages 133-144, May.
    • Handle: RePEc:cuf:journl:y:2016:v:17:i:1:dai
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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