Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/201968 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7742
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Technological innovations facilitating e-commerce have well-documented effects on consumer behavior and firm organization in the retail sector, but the effects of these new transaction technologies on fiscal systems remain unknown. By extending models of commodity tax competition to include urban spatial structure (agglomeration) and online commerce, one can analyze strategic tax-policy interactions among neighboring localities. Consumers buy different types of commodities, sold either by traditional or by online vendors. When the cost of online shopping falls, we show that equilibrium tax rates and revenues increase in small jurisdictions and decrease in large jurisdictions with retail shopping centers. Policy commentators warn that e-commerce erodes tax revenue - true enough for some localities - but, more accurately, changing transaction costs can generate entirely new commercial and fiscal equilibria that ultimately “redistribute” tax revenues from localities with concentrations of traditional vendors toward other, typically smaller, localities.
Subjects: 
sales tax
retail shopping
agglomeration
e-commerce
fiscal competition
JEL: 
H25
H71
H73
L81
R50
Document Type: 
Working Paper
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