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

29 Pages Posted: 4 Feb 1999

See all articles by Austan Goolsbee

Austan Goolsbee

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

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

JEL Classification: H22, H25

Suggested Citation

Goolsbee, Austan, In a World Without Borders: The Impact of Taxes on Internet Commerce (December 1998). Available at SSRN: or

Austan Goolsbee (Contact Author)

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