Does e-commerce ease or intensify tax competition? Destination principle versus origin principle

Abstract

This study examines the relationship between e-commerce development and the intensity of commodity tax competition under two tax principles for goods purchased online: the destination principle and the origin principle. The main findings are as follows: Given that origin-based tax is applied to purchases made in brick-and-mortar stores, (i) tax competition under destination-based taxation on e-commerce is more intense than tax competition under origin-based taxation; and (ii) the expansion of the online market intensifies destination-based tax competition while easing origin-based tax competition. The main factor leading to the results is that replacing the choice of “where to purchase” goods, consumers will have a new choice of “how to purchase” when online purchasing becomes available, and destination-based taxation distorts the latter choice, while origin-based taxation is neutral.