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American Economic Review: Vol. 104 No. 1 (January 2014)

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Sales Taxes and Internet Commerce

Article Citation

Einav, Liran, Dan Knoepfle, Jonathan Levin, and Neel Sundaresan. 2014. "Sales Taxes and Internet Commerce." American Economic Review, 104(1): 1-26.

DOI: 10.1257/aer.104.1.1

Abstract

We estimate the sensitivity of Internet retail purchasing to sales taxes using eBay data. Our first approach exploits the fact that a seller's location—and therefore the applicable tax rate—is revealed only after a buyer has expressed interest in an item. We document how adverse tax "surprises" reduce the likelihood of purchase and shift subsequent purchases toward out-of-state sellers. We then use more aggregated data to estimate that every one percentage point increase in a state's sales tax increases online purchases by state residents by almost 2 percent, while decreasing their online purchases from state retailers by 3–4 percent.

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Online Appendix (785.00 KB) | Download Data Set (84.77 KB) | Author Disclosure Statement(s) (29.82 KB)

Authors

Einav, Liran (Stanford U)
Knoepfle, Dan (Stanford U)
Levin, Jonathan (Stanford U)
Sundaresan, Neel (eBay Research Labs, San Jose, CA)

JEL Classifications

H71: State and Local Taxation, Subsidies, and Revenue
L81: Retail and Wholesale Trade; e-Commerce
L86: Information and Internet Services; Computer Software


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