IN A WORLD WITHOUT BORDERS: THE IMPACT OF TAXES ON

INTERNET COMMERCE Austan Goolsbee University of Chicago, G.S.B.,

American Bar Foundation, and N.B.E.R. Current Version: November, 1998

Abstract The rapid rise in sales over the Internet has generated debate over

the taxation of such transactions since the buyers usually pay no sales tax.

This paper uses new data on the purchase decisions of approximately 25,000

online users to examine the effects that local sales taxes have on Internet

commerce. The results show that, controlling for many observable

characteristics, people who live in locations with high sales taxes are

significantly more likely to buy things over the Internet. The estimated tax

responsiveness of both participation and spending are large and resemble the

tax effects found in previous research on retail sales in geographic border

areas. The results are quite robust; t

general approach. Section III presents the basic evidence that taxes impact

very different in most measures, although online buyers appear to be slightly

present (columns 3 and 4) the same probit and Tobit regressions but restrict

local level. I assume, first, that any one living in the main state of the

use tax on consumers has only been effective for goods like automobiles that

The magnitude suggests that at the mean of the covariates, raising the sales

does suggest that whatever the correlation between technological

many common products so I will assume that for the elasticity calculations. I

without borders but rather to create a world of only borders-a world in which

Some common words found in the essay are:
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Approximate Word count = 3610
Approximate Pages = 14 (250 words per page double spaced)