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Sales Taxes and Internet Commerce

Author

Listed:
  • 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.

Suggested Citation

  • Liran Einav & Jonathan Levin & Neel Sundaresan, 2012. "Sales Taxes and Internet Commerce," Discussion Papers 11-012, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:11-012
    as

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    File URL: http://www-siepr.stanford.edu/repec/sip/11-012.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Austan Goolsbee & Michael F. Lovenheim & Joel Slemrod, 2010. "Playing with Fire: Cigarettes, Taxes, and Competition from the Internet," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 131-154, February.
    4. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    5. James Alm & Mikhail I. Melnik, 2005. "Sales Taxes and the Decision to Purchase Online," Public Finance Review, , vol. 33(2), pages 184-212, March.
    6. Michael D. Smith & Erik Brynjolfsson, 2001. "Consumer Decision-making at an Internet Shopbot: Brand Still Matters," NBER Chapters,in: E-commerce, pages 541-558 National Bureau of Economic Research, Inc.
    7. Besley, Timothy J. & Rosen, Harvey S., 1999. "Sales Taxes and Prices: An Empirical Analysis," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 157-178, June.
    8. Mark A. Scanlan, 2007. "Tax Sensitivity in Electronic Commerce," Fiscal Studies, Institute for Fiscal Studies, vol. 28(4), pages 417-436, December.
    9. Ballard, Charles L. & Lee, Jaimin, 2007. "Internet Purchases, Cross-Border Shopping, and Sales Taxes," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(4), pages 711-725, December.
    10. 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.
    11. Raj Chetty, 2009. "The Simple Economics of Salience and Taxation," NBER Working Papers 15246, National Bureau of Economic Research, Inc.
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    Cited by:

    1. repec:eee:pubeco:v:150:y:2017:i:c:p:53-74 is not listed on IDEAS
    2. Steel, Will & Daglish, Toby & Marriott, Lisa & Gemmell, Norman & Howell, Bronwyn, 2013. "E-Commerce and its effect upon the Retail Industry and Government Revenue," Working Paper Series 4333, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    3. Ishuan Li & Robert Simonson & Guncha Babajanova & Matthew Tuomala, 2016. "Smartphone Diffusion and Consumer Price Comparison Shopping Behavior: Implications for the Marketplace Fairness Act," Economics Bulletin, AccessEcon, vol. 36(3), pages 1337-1353.
    4. Jean-François Houde & Peter Newberry & Katja Seim, 2017. "Economies of Density in E-Commerce: A Study of Amazon’s Fulfillment Center Network," NBER Working Papers 23361, National Bureau of Economic Research, Inc.
    5. repec:eee:pubeco:v:160:y:2018:i:c:p:1-13 is not listed on IDEAS
    6. Casey B. Mulligan, 2017. "The Employer Penalty, Voluntary Compliance, and the Size Distribution of Firms: Evidence from a Survey of Small Businesses," NBER Working Papers 24037, National Bureau of Economic Research, Inc.
    7. 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.
    8. Sumit Agarwal & Leslie McGranahan, 2012. "Spending responses to state sales tax holidays," Working Paper Series WP-2012-10, Federal Reserve Bank of Chicago.
    9. Houde, Sebastien & Aldy, Joseph E., 2017. "The Efficiency Consequences of Heterogeneous Behavioral Responses to Energy Fiscal Policies," Working Paper Series rwp17-047, Harvard University, John F. Kennedy School of Government.
    10. repec:bla:jindec:v:65:y:2017:i:2:p:439-468 is not listed on IDEAS
    11. Birg, Laura, 2015. "Cross-border or online: Tax competition with mobile consumers under destination and origin principle," Center for European, Governance and Economic Development Research Discussion Papers 265, University of Goettingen, Department of Economics.
    12. 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.
    13. Sébastien Houde & Joseph E. Aldy, 2017. "The Efficiency Consequences of Heterogeneous Behavioral Responses to Energy Fiscal Policies," NBER Working Papers 24103, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • 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

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