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

  • Bo Sandemann Rasmussen


    (Department of Economics, University of Aarhus, Denmark)

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    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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    1. James Brander & Paul Krugman, 1982. "A 'Reciprocal Dumping' Model of International Trade," Working Papers 513, Queen's University, Department of Economics.
    2. Zodrow, George R, 2003. "Network Externalities and Indirect Tax Preferences for Electronic Commerce," International Tax and Public Finance, Springer, vol. 10(1), pages 79-97, January.
    3. Austan Goolsbee, 1998. "In a World Without Borders: The Impact of Taxes on Internet Commerce," NBER Working Papers 6863, National Bureau of Economic Research, Inc.
    4. 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.
    5. 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.
    6. Goolsbee, Austan & Zittrain, Jonathan, 1999. "Evaluating the Costs and Benefits of Taxing Internet Commerce," National Tax Journal, National Tax Association, vol. 52(n. 3), pages 413-28, September.
    7. 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.
    8. Deaton, Angus, 1979. "Optimally uniform commodity taxes," Economics Letters, Elsevier, vol. 2(4), pages 357-361.
    9. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    10. 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.
    11. 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.
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