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
Date Written: February 1, 2017
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: Suggested Citation