The Internet as a Tax Haven?

61 Pages Posted: 16 Mar 2021

See all articles by David R. Agrawal

David R. Agrawal

University of Kentucky - James W. Martin School of Public Policy and Administration; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 2021

Abstract

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 destination-based 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.

JEL Classification: H250, H710, H730, L810, R500

Suggested Citation

Agrawal, David R., The Internet as a Tax Haven? (2021). CESifo Working Paper No. 8924, Available at SSRN: https://ssrn.com/abstract=3801383 or http://dx.doi.org/10.2139/ssrn.3801383

David R. Agrawal (Contact Author)

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

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Lexington, KY 40506-0027
United States
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HOME PAGE: http://www.uky.edu/~drag222/

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

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Munich, DE-81679
Germany

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

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