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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 one standard deviation increase in internet penetration lowers local sales taxes in large municipalities by 0.15 percentage points or 16% of the average rate.

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  • David R. Agrawal, 2021. "The Internet as a Tax Haven?," CESifo Working Paper Series 8924, CESifo.
    • Handle: RePEc:ces:ceswps:_8924
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    Citations

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    Cited by:

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    2. 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.
    3. 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.
    4. 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).
    5. Xuefeng Shao & Shi Chen, 2024. "Research on Tax Compliance Incentive Effects of Platform Companies from the Perspective of Incomplete Contract – An Empirical Study Based on China," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 26(65), pages 330-330, February.
    6. 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.
    7. 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.
    8. 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.
    9. Juan Carlos Lopez, 2022. "Who will gain from the South Dakota vs. Wayfair Inc. ruling?," Economics Bulletin, AccessEcon, vol. 42(1), pages 90-98.
    10. 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).
    11. David R. Agrawal, 2023. "Hidden Havens: State and Local Governments as Tax Havens?," CESifo Working Paper Series 10573, CESifo.

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    More about this item

    Keywords

    e-commerce; online shopping; sales tax; tax competition;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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