Taxation and Innovation: The Sharing Economy as a Case Study

Nestor Davidson, Michèle Finck and John Infranca, Cambridge Handbook on Law and Regulation of the Sharing Economy (Cambridge University Press 2018)

San Diego Legal Studies Paper No. 18-319

21 Pages Posted: 27 Dec 2017 Last revised: 8 Jan 2018

See all articles by Jordan M. Barry

Jordan M. Barry

University of San Diego School of Law

Date Written: December 20, 2017

Abstract

This chapter considers the relationship between the U.S. federal income tax system and innovation, using the sharing economy as a focal point for analysis. It makes two main points. First, the tax system is currently a questionable tool for encouraging innovation. Regulators are understandably concerned that taxpayers will use tax incentive provisions in unanticipated ways, and thus are inclined to tightly limit such provisions’ scope. This reduces incentive provisions’ net benefit to taxpayers, and can even cause such provisions to miss their marks entirely. Moreover, small and new companies are key drivers of innovation, and evidence suggests that they are relatively unresponsive to tax incentives.

Second, innovation can help improve the tax system. To fix a problem, one must first identify it; innovation provides opportunities to see where tax law is achieving its goals and where it is falling short. The sharing economy experience suggests some strengths, such as the tax system’s definition of income, as well as weaknesses, such as the dividing line between independent contractors and employees.

Keywords: Tax, Innovation, Sharing Economy, Technological Innovation, Transactional Innovation, Tax Policy, Tax Expenditures, Innovation Policy, Law and Economics, Venture Capital, Startups, Uber, Airbnb, Lyft, TaskRabbit

JEL Classification: H25, K34, O38, H26, K22, O31, A33,

Suggested Citation

Barry, Jordan, Taxation and Innovation: The Sharing Economy as a Case Study (December 20, 2017). Nestor Davidson, Michèle Finck and John Infranca, Cambridge Handbook on Law and Regulation of the Sharing Economy (Cambridge University Press 2018); San Diego Legal Studies Paper No. 18-319. Available at SSRN: https://ssrn.com/abstract=3091380

Jordan Barry (Contact Author)

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

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