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

58 Pages Posted: 21 Sep 2013 Last revised: 26 May 2020

See all articles by David R. Agrawal

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

If online transactions are tax-free, increased online shopping may lower tax rates as jurisdictions seek to reduce tax avoidance; but, if online firms remit taxes, online sales may put upward pressure on tax rates because the internet enforces destination-based taxes. I find that higher internet penetration results in lower municipal tax rates on average, but raises tax rates in some jurisdictions. The latter effect emerges in states where many online vendors remit taxes. A one standard deviation increase in internet penetration lowers local sales taxes in large municipalities by 0.20 percentage points or 17% of the average rate.

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 R. Agrawal (Contact Author)

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

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Lexington, KY 40506-0027
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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 )

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Munich, DE-81679
Germany

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

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