The Internet as a Tax Haven?
David R. Agrawal
- American Economic Journal: Economic Policy (Forthcoming)
If online transactions are tax-free, increased online shopping may lower tax rates as
jurisdictions seek to reduce tax avoidance; but, if online firms remit taxes, online sales
may put upward pressure on tax rates because internet sales help enforce destinationbased
taxes. I find that higher internet penetration generally results in lower municipal
tax rates, but raises tax rates in some jurisdictions. The latter effect emerges in states
where many online vendors remit taxes. A one standard deviation increase in internet
penetration lowers local sales taxes in large municipalities by 0.15 percentage points or
16% of the average rate.
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