Sales Taxes and Internet Commerce

Liran Einav, Dan Knoepfle, Jonathan D. Levin, Neel Sundaresan

NBER Working Paper No. 18018
Issued in April 2012
NBER Program(s):The Industrial Organization Program, The International Trade and Investment Program, The Law and Economics Program, The Public Economics Program

We estimate the sensitivity of Internet retail purchasing to sales taxes using data from the eBay marketplace. Our first approach exploits the fact that seller locations are revealed only after buyers have expressed interest in an item by clicking on its listing. We use millions of location "surprises" to estimate price elasticities with respect to the effective sales tax. We then use aggregated data to estimate cross-state substitution parameters, and substitution between offline and online purchases, relying on the variation in state and local sales taxes, and on changes in these rates over time. We find substantial sensitivity to sales taxes. Using our item-level approach, we find a price elasticity of around -2 for interested buyers. Using our aggregate approach, we find that a one percentage point increase in a state's sales tax increases online purchases by state residents by just under two percent, but decreases their online purchases from home-state retailers by 3-4 percent.

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Document Object Identifier (DOI): 10.3386/w18018

Published: Liran Einav & Dan Knoepfle & Jonathan Levin & Neel Sundaresan, 2014. "Sales Taxes and Internet Commerce," American Economic Review, American Economic Association, vol. 104(1), pages 1-26, January. citation courtesy of

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