Will destination-based taxes be fully exploited when available? An application to the U.S. commodity tax system

David R. Agrawal, Mohammed Mardan

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

We develop a tax competition model that allows for the setting of both an origin-based and a destination-based commodity tax rate in the presence of avoidance and evasion. In the presence of evasion, jurisdictions will give cross-border shoppers tax preferential treatment, thus not fully exploiting the potential of destination-based taxation. Moreover, the divergence between origin-based and destination-based taxes is stronger when the incentives for consumers’ tax-arbitrage opportunities increase. The United States is one example of many such systems. While sales taxes are due at the point of sale, use taxes are due on goods purchased out-of-state. We document that when able to set both rates, a majority of jurisdictions levy destination-based use taxes at a lower rate than origin-based sales taxes. In response to changes in state-level policies that increase tax avoidance opportunities, the results of the empirical model broadly confirm our theory.

Original languageEnglish
Pages (from-to)128-143
Number of pages16
JournalJournal of Public Economics
Volume169
DOIs
StatePublished - Jan 2019

Bibliographical note

Publisher Copyright:
© 2018 Elsevier B.V.

Keywords

  • Destination taxation
  • Origin taxation
  • Sales tax
  • Tax avoidance
  • Tax competition
  • Tax evasion
  • Use tax

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Will destination-based taxes be fully exploited when available? An application to the U.S. commodity tax system'. Together they form a unique fingerprint.

Cite this