The Internet as a Tax Haven? The Effect of the Internet on Tax Competition

80 Pages Posted: 21 Sep 2013 Last revised: 17 Feb 2017

David R. Agrawal

University of Kentucky - James W. Martin School of Public Policy and Administration; University of Kentucky - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 1, 2017

Abstract

High Internet penetration puts downward pressure on tax rates as jurisdictions seek to reduce revenue leakage to tax-free sales; but, taxable online sales will put upward pressure on tax rates because the Internet facilitates tax collection. I find that an increase in Internet penetration induces municipalities on the low-state-tax side of state borders to lower their local tax rates by more than municipalities on the high-state-tax side. A one standard deviation increase in Internet penetration in large municipalities lowers local sales taxes by 0.15 percentage points more in low-tax states.

Keywords: Commodity Taxation, Fiscal Competition, e-Commerce, Tax Havens, Tax Evasion

JEL Classification: H25, H71, H73, L81, R50

Suggested Citation

Agrawal, David R., The Internet as a Tax Haven? The Effect of the Internet on Tax Competition (February 1, 2017). Available at SSRN: https://ssrn.com/abstract=2328479 or http://dx.doi.org/10.2139/ssrn.2328479

David Robert Agrawal (Contact Author)

University of Kentucky - James W. Martin School of Public Policy and Administration ( email )

433 Patterson Office Tower
Lexington, KY 40506-0027
United States
859-257-8608 (Phone)

HOME PAGE: http://www.uky.edu/~drag222/

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

HOME PAGE: http://www.uky.edu/~drag222/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.uky.edu/~drag222/

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