The Internet as a Tax Haven? The Effect of the Internet on Tax Competition
David R. Agrawal
University of Georgia - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
February 1, 2015
High Internet penetration puts downward pressure on local sales tax rates when online sales are tax-free as jurisdictions seek to reduce revenue-leakages, but places upward pressure on tax rates when online sales are taxable because the Internet helps enforce sales tax collection. I use panel data on local sales tax rates for all states to show that the effect of Internet penetration is negative. As predicted by theory, the negative effect on sales tax rates is stronger for municipalities on the low-tax side of state borders that were not constrained by revenue losses from cross-border shopping in the pre-Internet era.
Number of Pages in PDF File: 77
Keywords: Commodity Taxation, Fiscal Competition, e-Commerce, Tax Havens, Tax Evasion
JEL Classification: H25, H71, H73, L81, R50
Date posted: September 21, 2013 ; Last revised: February 25, 2015
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