Business model digitalization, competition, and tax savings

Elisa Casi-Eberhard, Petro Lisowsky (), Barbara M. B. Stage () and Maximilian Todtenhaupt
Additional contact information
Petro Lisowsky: Questrom School of Business, Boston University, Postal: NHH , Boston University, Questrom School of Business, Rafik B. Hariri Building, 595 Commonwealth Avenue, Boston, MA 02215, USA, https://www.bu.edu/questrom/profile/petro-lisowsky/
Barbara M. B. Stage: WHU - Otto Beisheim School of Management, Postal: WHU – Otto Beisheim School of Management , Burgplatz 2, D-56179 Vallendar, Germany, https://www.whu.edu/en/faculty-research/assistant-professors/barbara-stage/

No 2024/6, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: We examine the effect of business model digitalization on competition and how corporate tax savings through digitalization may augment this relationship. Global policymakers express concern that digitalization-related tax savings unfairly benefit the competitive standing of rival firms over their competitors. Using textual analysis techniques to identify firms’ business models, we show that rivals’ adoption of a digital business model leads to negative economic effects on the performance of their non-digitalizing competitors. We estimate that a one standard deviation increase in the share of digitalized rivals in a market reduces a competitor’s market share by 4.6%. Suggesting significant tax savings from digitalizing, we also find that digitalizing rivals substantially reduce their effective tax rates, mostly by increased use of tax havens. However, when we test whether the detected competitive externalities vary depending on the share of digitalizing rivals with versus without substantial digitalization-related tax savings, we find the economic magnitudes of their effects are quantitatively similar. Therefore, contrary to policymakers’ concerns of digitalization-related tax savings unfairly shaping competition, our findings suggest that tax savings from digitalization is not a key driver of altering competition between digitalized and non-digitalized firms.

Keywords: Digital; Tax; Product Market; Competition; Business Model (search for similar items in EconPapers)
JEL-codes: D40 H25 H26 L22 O33 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2024-03-13
New Economics Papers: this item is included in nep-com, nep-pbe and nep-pub
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