Working Paper: NBER ID: w18018
Authors: Liran Einav; Dan Knoepfle; Jonathan D. Levin; Neel Sundaresan
Abstract: 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.
Keywords: Sales Taxes; Internet Commerce; Online Retail; Consumer Behavior
JEL Codes: D12; H20; H71; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sales tax increase (H29) | decrease in online purchases from in-state sellers (H79) |
| sales tax increase (H29) | increase in online purchases from out-of-state sellers (H79) |
| sales tax increase (H29) | decrease in purchasing likelihood (D12) |
| sales tax increase (H29) | decrease in online purchasing shares (L81) |
| sales tax increase (H29) | increase in price elasticity of online purchasing (F61) |
| sales tax increase (H29) | highest price elasticity in electronics (L63) |