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In a World Without Borders: The Impact of Taxes on Internet Commerce

Austan Goolsbee

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

December 1998

The rapid rise in sales over the Internet has generated debate over the taxation of such transactions since the buyers usually pay no sales tax. This paper uses new data on the purchase decisions of approximately 25,000 online users to examine the effects that local sales taxes have on Internet commerce. The results show that, controlling for many observable characteristics, people who live in locations with high sales taxes are significantly more likely to buy things over the Internet. The estimated tax responsiveness of both participation and spending are large and resemble the tax effects found in previous research on retail sales in geographic border areas. The results are quite robust; the tax sensitivity is clear nationally, within regions, within states, and even within metropolitan areas. Further results suggest that the tax effect cannot be explained by unobserved heterogeneity across cities. The magnitudes in the paper suggest that to apply existing sales taxes to Internet commerce would reduce the number of online buyers by 25% and spending by more than 30% with some specifications suggesting even larger effects.

Number of Pages in PDF File: 29

JEL Classification: H22, H25

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Date posted: February 4, 1999  

Suggested Citation

Goolsbee, Austan, In a World Without Borders: The Impact of Taxes on Internet Commerce (December 1998). Available at SSRN: https://ssrn.com/abstract=144928 or http://dx.doi.org/10.2139/ssrn.144928

Contact Information

Austan Goolsbee (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-5869 (Phone)
773-702-0458 (Fax)

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National Bureau of Economic Research (NBER)
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Cambridge, MA 02138
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