Can Taxes Shape an Industry? Evidence from the Implementation of the 'Amazon Tax'

54 Pages Posted: 10 Apr 2014 Last revised: 27 Jan 2018

See all articles by Brian Baugh

Brian Baugh

Univeristy of Nebraska at Lincoln (UNL) - Department of Finance

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Hoonsuk Park

University of Melbourne - Faculty of Business and Economics

Date Written: January 26, 2018

Abstract

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 online retailer Amazon collect sales tax during checkout. Using transaction-level data, we document that households living in these states reduced 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.

Keywords: Amazon Tax, price elasticity, sales tax, internet commerce

JEL Classification: D12, D40, L51

Suggested Citation

Baugh, Brian and Ben-David, Itzhak and Park, Hoonsuk, Can Taxes Shape an Industry? Evidence from the Implementation of the 'Amazon Tax' (January 26, 2018). Journal of Finance, Forthcoming, 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

Brian Baugh

Univeristy of Nebraska at Lincoln (UNL) - Department of Finance ( email )

Lincoln, NE 68588-0490
United States

HOME PAGE: http://https://cba.unl.edu/people/bbaugh

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Hoonsuk Park

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia

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