Sales Taxation, Spatial Agglomeration, and the Internet

67 Pages Posted: 31 Jul 2017 Last revised: 16 Aug 2017

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)

David E. Wildasin

University of Kentucky; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA); University of Oxford - Oxford University Centre for Business Taxation

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2017

Abstract

By extending the standard model of commodity tax competition (Kanbur and Keen 1993) to include urban spatial structure (agglomeration) and online commerce, one can better analyze strategic tax-policy interactions among neighboring localities. Consumers buy different types of commodities, sold either by traditional or by online vendors. When the cost of online shopping falls, we show that equilibrium tax rates and revenues increase in small jurisdictions and decrease in large jurisdictions with retail shopping centers. Policy commentators warn that e-commerce erodes tax revenue - true enough for some localities - but, more accurately, changing transaction costs can generate entirely new commercial and fiscal equilibria that ultimately “redistribute” tax revenues from localities with concentrations of traditional vendors toward other, typically smaller, localities.

Keywords: Sales Tax, Tax Evasion, Agglomeration, e-Commerce, Tax Competition

JEL Classification: H25, H71, H73, L81, R50

Suggested Citation

Agrawal, David Robert and Wildasin, David E., Sales Taxation, Spatial Agglomeration, and the Internet (August 1, 2017). Available at SSRN: https://ssrn.com/abstract=3009785 or http://dx.doi.org/10.2139/ssrn.3009785

David Robert Agrawal (Contact Author)

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

433 Patterson Office Tower
Lexington, KY 40506-0027
United States
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 )

Poschinger Str. 5
Munich, DE-81679
Germany

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

David E. Wildasin

University of Kentucky ( email )

Department of Economics
Lexington, KY 40546
United States

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

University of Oxford - Oxford University Centre for Business Taxation ( email )

Saïd Business School
Park End Street
Oxford, OX1 1HP
United Kingdom

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