Preferential Taxation of E-Commerce: Imperfectly Competitive Retail Market and Trade Costs
Univ. of Aarhus Working Paper No. 2004-09
32 Pages Posted: 18 Jun 2008
Date Written: September 21, 2004
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.
Keywords: E-commerce, imperfect competition, pro-competitive gains, trade diversion, commodity taxation
JEL Classification: H25, L12, F13
Suggested Citation: Suggested Citation