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No Longer a Tax Haven? The Impact of Taxes on Internet Purchase Behavior

35 Pages Posted: 11 Sep 2008  

Peng Huang

University of Maryland - Robert H. Smith School of Business

Nicholas H. Lurie

University of Connecticut School of Business

Date Written: September 10, 2008

Abstract

Using the online transaction data of 88,814 U.S. households in 2006, we analyze how local tax rates affect online purchasing behavior. Although earlier survey-based research has found that consumers who live in high-tax localities are more likely to shop online, our transaction-based data show the opposite. We find that higher local tax rates are associated with lower online expenditures, reduced transaction frequency, and a lower probability of making an online purchase. A disaggregate analysis shows that increased sales tax does not significantly boost demand from tax avoiding retailers but significantly lowers demand for online retailers that collect tax. In addition online shoppers are more than twice as sensitive to tax as traditional store shoppers. Finally, we document that tax losses from Internet sales are more moderate than previously estimated.

Keywords: Internet, e-commerce, tax, public policy

Suggested Citation

Huang, Peng and Lurie, Nicholas H., No Longer a Tax Haven? The Impact of Taxes on Internet Purchase Behavior (September 10, 2008). Available at SSRN: https://ssrn.com/abstract=1266432 or http://dx.doi.org/10.2139/ssrn.1266432

Peng Huang (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Nicholas Lurie

University of Connecticut School of Business ( email )

Storrs, CT CT - Connecticut 06269
United States

HOME PAGE: http://www.business.uconn.edu/person/nicholas-lurie/

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