Preferential Taxation of E-Commerce: Imperfectly Competitive Retail Markets and Trade
Bo Sandemann Rasmussen
University of Aarhus - Department of Economics
June 9, 2004
University of Aarhus Economics Working Paper No. 2004-9
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.
Number of Pages in PDF File: 32
Keywords: E-commerce, imperfect competition, pro-competitive gains, trade diversion, commodity taxation, physical goods, trade costs
JEL Classification: H25, L12, F13working papers series
Date posted: September 27, 2004
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