The Impact of Sales Tax on Internet and Catalog Sales: Evidence from a Natural Experiment

29 Pages Posted: 13 Dec 2013 Last revised: 25 Jan 2017

See all articles by Yu Jeffrey Hu

Yu Jeffrey Hu

Georgia Institute of Technology - Scheller College of Business

Zhulei Tang

Purdue University - Krannert School of Management

Date Written: December 11, 2013

Abstract

This paper studies the effect of sales tax changes on internet and catalog sales. We collect sales data from a retailer that sells its products through its internet and catalog channels. We analyze the retailer’s sales before and after a major tax cut in one of the largest metropolitan areas in the U.S. This natural experiment allows us to separate the effect of the tax cut from the effect of other confounding factors. The results from our panel data analyses indicate that remote sales have decreased by about 15 percent in response to a four percentage point decrease in sales tax. Our results are statistically significant and highly robust. Interestingly, we also find that the effect of the tax cut varies across different types of consumers, products, and channels. These findings have important managerial and public policy implications.

Keywords: Electronic Commerce, Internet Sales, Sales Tax, Price Elasticity

JEL Classification: H71, K34

Suggested Citation

Hu, Yu Jeffrey and Tang, Zhulei, The Impact of Sales Tax on Internet and Catalog Sales: Evidence from a Natural Experiment (December 11, 2013). International Journal of Industrial Organization, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2366413

Yu Jeffrey Hu (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Zhulei Tang

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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