Charles A. Dice Center Working Paper No. 2014-05
50 Pages Posted: 10 Apr 2014 Last revised: 17 Sep 2016
Date Written: September 1, 2016
For years, online retailers have maintained a price advantage over brick-and-mortar retailers by not collecting sales tax at the time of sale. Recently, several states have required that the online retailer Amazon collect sales tax during checkout. Using transaction-level data, we document that households living in these states reduce Amazon purchases by 9.4% after sales tax laws were implemented, implying elasticities ranging from –1.2 to –1.4. The effect is more pronounced for large purchases, for which we estimate a reduction of 29.1% in purchases, corresponding to an elasticity of –3.9. Studying competitors in the electronics field, we detect some evidence of substitution toward competing retailers. Consistent with an income effect, we find a reduction in spending in other categories that is concentrated among the heaviest Amazon shoppers.
Keywords: Amazon Tax, price elasticity, sales tax, internet commerce
JEL Classification: D12, D40, L51
Suggested Citation: Suggested Citation
Baugh, Brian and Ben-David, Itzhak and Park, Hoonsuk, Can Taxes Shape an Industry? Evidence from the Implementation of the 'Amazon Tax' (September 1, 2016). Fisher College of Business Working Paper No. 2014-03-05; Charles A. Dice Center Working Paper No. 2014-05. Available at SSRN: https://ssrn.com/abstract=2422403 or http://dx.doi.org/10.2139/ssrn.2422403