A World Without Borders Revisited: The Impact of Sales Tax Collection on Shopping and Search


Since 2000, online shopping has grown dramatically as a share of total expenditures and, until recently, it was an easy way to avoid sales taxes. Using household-level shopping data, sales tax data, and staggered online sales tax collection, I identify tax elasticities for households. I find household elasticities are -0.3 to -0.5 with respect to tax rates on Amazon. This is much lower than previously found in the literature. Additionally, households spend more time searching Amazon’s untaxed competitors after Amazon begins collecting sales tax. Finally, when looking at total household expenditures, including offline spending, households increase expenditures after Amazon collects sales tax, but not through online channels, indicating that households shift spending to offline channels after the policy change. This is the first paper to estimate how much individuals shift their online spending offline in response to sales taxes. Enforcing sales tax online may help recapture lost tax revenue, but it will likely not provide the local economic boost state and local governments desire.