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- W338069164 abstract "The growth of the information economy--the Internet, computers, media, and the like--has generated massive amounts of debate in popular and policy circles. More than that, though, it has raised many interesting subjects for economic research. My work in the area has focused on two general topics: the impact of tax and other government policies in the information economy, and the nature of industrial competition on the Internet and in other information-based industries. In general, the findings have tended to suggest that the responsiveness to price, tax, and other types of shocks in these industries is surprisingly high. Taxes and the Information Economy The rapid rise of the Internet certainly has made policymakers nervous about how online retail sales may serve to undermine the sales tax base of the states. Internet sales are treated the same way as catalog sales for tax purposes, which is to say that sales tax applies to all transactions, in principle, but cannot be enforced, in practice, because of legal restrictions. States are not allowed to require out-of-state merchants to collect sales tax on their citizens, so Amazon.com in Washington is not required to collect sales tax on sales to customers in Illinois, for example, where it has no employees or physical presence. As almost no private citizens are voluntarily paying the taxes on such transactions, it's as if they were tax-free. Using a large dataset on the online purchase behavior of consumers around the country, I examined how much this tax break matters for the probability of buying online. (1) The idea is that living in a place with a sales tax of 5 percent raises the relative price of buying in a store relative to the Internet by 5 percent so should make buying online more likely. The equivalent of charging sales tax online would be moving to a state like Delaware that has no sales tax at all (so the relative prices are unaffected). The data show that customers' online buying is quite sensitive to local sales tax rates. Controlling for individual observables and for MSA effects, people living in higher sales tax places are more likely to buy online and this effect is largest for goods like books and computers (where sales tax definitely would apply) and non-existent for things like mutual funds and stocks (where there is no sales tax). The data suggest enforcing sales taxes online, at the time of the sample, would have reduced the likelihood of buying by almost 25 percent. In a follow-up piece, I used later data to reexamine the elasticity and to determine if consumers had become less tax sensitive as a greater share of the country went online. (2) The interesting thing was that in both the older and the newer cross-sections, only Internet veterans, those online for two or more years, were responsive to taxes. New users were not sensitive to tax rates at all. Since the Internet had been growing something like 100 percent per year at that point, it suggested that the tax problem might diminish over time. The problem was, the follow-up data showed that with the passing of time, the formerly new users had become just as sensitive to tax rates as the Internet veterans. People, evidently, learn how to use the Internet to avoid sales taxes the longer they are on line. In work with Jonathan Guryan, I look at the issue of tax subsidies for Internet adoption in public schools through the e-rate program. (3) This subsidy of $2.25 billion per year amounted to as much as 35-40 percent of the entire computer budget of U.S. public schools combined and is funded through a tax on long-distance telephone service (which is not without controversy in itself for being a tax with a particularly high deadweight loss. (4)) The program subsidizes Internet access and communications technology up to 90 percent (poorer schools get higher subsidies) but following a formula with several discrete jumps. We use the step-function nature of the subsidy to identify the impact of the subsidy on Internet investment while controlling for the characteristics of the schools. …" @default.
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- W338069164 date "2004-03-22" @default.
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- W338069164 title "Taxes, Competition, and the Information Economy" @default.
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