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Preferential Taxation of E-Commerce: Imperfectly Competitive Retail Markets and Trade Costs

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  • Bo Sandemann Rasmussen

    (Department of Economics, University of Aarhus, Denmark)

Abstract

E-commerce in physical goods enhances the degree of product market competition but leads also to higher trading costs as goods bought through the internet are shipped individually. Do these features of e-commerce support a case for granting preferential tax treatment to online shopping? This is investigated using a model with a domestic monopolistic retailer and foreign competitive producers that can either deliver a physical good to the retailer (ordinary trade) or directly to domestic consumers (e-commerce). Although it is possible to construct cases of strictly positive welfare effects the general result is that granting tax preferences to e-commerce will have ambiguous welfare consequences.

Suggested Citation

  • Bo Sandemann Rasmussen, 2004. "Preferential Taxation of E-Commerce: Imperfectly Competitive Retail Markets and Trade Costs," Economics Working Papers 2004-9, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2004-9
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    File URL: https://repec.econ.au.dk/repec/afn/wp/04/wp04_09.pdf
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    References listed on IDEAS

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    Cited by:

    1. Bo Sandemann Rasmussen, 2004. "On the Possibility and Desirability of Taxing E-Commerce," Economics Working Papers 2004-8, Department of Economics and Business Economics, Aarhus University.
    2. Tessa Conroy & Harvey Cutler & Stephan Weiler, 2016. "The State-Level Impacts of Enforcing Sales Taxes for E-retail Purchases," Growth and Change, Wiley Blackwell, vol. 47(2), pages 276-295, June.

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    More about this item

    Keywords

    E-commerce; imperfect competition; pro-competitive gains; trade diversion; commodity taxation; physical goods; trade costs;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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