Navigating the Amazon: The Incidence of Digital Service Taxes

with Rohit Reddy Muddasani (Vienna University of Economics and Business)

Large digital firms pay little profit tax in many countries, prompting several countries to introduce digital services taxes on these firms to indirectly tax their profits. We study the incidence of digital service taxes using data on Amazon, the largest online retailer. We find that Amazon increased its fees by almost the exact amount of the digital service tax. Firms using Amazon as a platform have largely been able to pass these increased costs onto consumers. On average, the incidence of digital service taxes falls almost entirely on consumers, though there is significant heterogeneity among countries.