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The Digital Services Tax as a Tax on Location-Specific Rent

Wei Cui and Nigar Hashimzade

No 7737, CESifo Working Paper Series from CESifo Group Munich

Abstract: In 2018, the European Council and the UK and Spanish governments each proposed to introduce a Digital Services Tax (DST), to be levied on the revenue of large digital platforms from advertising, online intermediation, and/or the transmission of data. We offer a rationalization of the DST as a tax on location-specific rent (LSR). That is, just as many countries already levy royalties on rent from extracting natural resources, one can think of the DST as levied on rent earned by digital platforms from particular locations. We provide stylized illustrations of how platform rent can be assigned to specific locations, even when users from multiple jurisdictions participate. We then elaborate the analogy between the DST and resource royalties, and analyze the DST’s incidence and effect on consumer welfare using a simple model. Finally, we argue that the DST suggests useful directions for redesigning international taxation in the age of labor-replacing AI technology.

Keywords: digital services tax; international taxation; location-specific rent; digital platforms (search for similar items in EconPapers)
JEL-codes: H25 K34 M37 M48 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ict, nep-law, nep-pay, nep-pbe and nep-pub
Date: 2019
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