Preferential Taxation of E-Commerce: Imperfectly Competitive Retail Markets and Trade

University of Aarhus Economics Working Paper No. 2004-9

32 Pages Posted: 27 Sep 2004

See all articles by Bo Sandemann Rasmussen

Bo Sandemann Rasmussen

Aarhus University - Department of Economics and Business Economics

Date Written: June 9, 2004

Abstract

E-commerce in physical goods enhances the degree of product market competition but leads also to higher trading costs as goods bought through the internet are shipped individually. Do these features of e-commerce support a case for granting preferential tax treatment to online shopping? This is investigated using a model with a domestic monopolistic retailer and foreign competitive producers that can either deliver a physical good to the retailer (ordinary trade) or directly to domestic consumers (e-commerce). Although it is possible to construct cases of strictly positive welfare effects the general result is that granting tax preferences to e-commerce will have ambiguous welfare consequences.

Keywords: E-commerce, imperfect competition, pro-competitive gains, trade diversion, commodity taxation, physical goods, trade costs

JEL Classification: H25, L12, F13

Suggested Citation

Rasmussen, Bo Sandemann, Preferential Taxation of E-Commerce: Imperfectly Competitive Retail Markets and Trade (June 9, 2004). University of Aarhus Economics Working Paper No. 2004-9, Available at SSRN: https://ssrn.com/abstract=595523 or http://dx.doi.org/10.2139/ssrn.595523

Bo Sandemann Rasmussen (Contact Author)

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

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