VAT Reform via Monopolistic Platformer in Borderless Economy : Price Pass-Though and Efficiency Consequences

Morita, Shigeo; Nishimura, Yukihiro

VAT Reform via Monopolistic Platformer in Borderless Economy : Price Pass-Though and Efficiency Consequences

Morita, Shigeo; Nishimura, Yukihiro

Discussion Papers In Economics And Business, 2025, 25-02-Rev.2

Number of Access:462（2025-08-14 18:27 Counts）

Identifier to cite or link to this item: https://hdl.handle.net/11094/100217

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Title	VAT Reform via Monopolistic Platformer in Borderless Economy : Price Pass-Though and Efficiency Consequences
Creator	NRID 1000000802737 1000000802737 CreatorName Morita, Shigeo
Creator	NRID 1000090345471 1000090345471 researchmap permalink read0156474 read0156474 Scopus Author ID 7403347968 7403347968 CreatorName Nishimura, Yukihiro
Subject	Value-added tax
	Tax reform
	Digital economy
	Platform
	Network externality
JEL	H25
	H26
	F23
	L13
	L86
Description	Revised：Tax Reform on Monopoly Platformer in Borderless Economy: The Incidence on Prices and Efficiency Consequences / Shigeo Morita, Yukihiro Nishimura, Hirofumi Okoshi [25-02-Rev., 2025]
Abstract	The development of online markets has raised ongoing concerns that foreign app service developers are avoiding value-added tax (VAT) in destination countries. To address this issue, some countries have introduced tax reforms that require platforms to pay VAT on behalf of foreign firms based on the sales generated by each firm. This study investigates whether preventing tax leakage through platform taxation improves welfare in the destination country. We first show that taxing foreign firms leads to a reduction in the commission fees charged by the platform to the sellers (developers) which replaces exited foreign developers with domestic ones. However, the increased tax burden also decreases the size of the network user base. Given this trade-off, we demonstrate that whether the domestic welfare increases after the tax reform depends critically on how responsive the sellers’ market entry is to network size. When the tax reform brings welfare gain, it increases with the tax rate and reduces with the initial share of foreign developers. Finally, we show that digitalization mitigates both welfare loss and the platform’s tax avoidance.
Publisher	Graduate School of Economics, Osaka University
Source Title	Discussion Papers In Economics And Business
Volume (Issue)	25-02-Rev.2
Date of Issued	2025-07
Language	English
Handle URL	https://hdl.handle.net/11094/100217
Relation.references	URI https://www2.econ.osaka-u.ac.jp/econ_society/dp/2502R2.pdf
Access Rights	metadata only access
Category	ディスカッション／ワーキング・ペーパー DP/WP
Category	Discussion Papers In Economics And Business

Resource Type	technical report
Local Type	DP/WP
DCMI Type	Text
DCTERMS.bibliographicCitation	Discussion Papers In Economics And Business. 2025, 25-02-Rev.2
DC.title	VAT Reform via Monopolistic Platformer in Borderless Economy : Price Pass-Though and Efficiency Consequences
DC.creator	Morita, Shigeo
DC.creator	Nishimura, Yukihiro
DC.publisher	Graduate School of Economics, Osaka University
DC.language' scheme='DCTERMS.RFC1766	English
DC.type' scheme='DCTERMS.DCMIType	Text
DCTERMS.issued' scheme='DCTERMS.W3CDTF	2025-07
DC.relation' scheme='DCTERMS.URI	https://www2.econ.osaka-u.ac.jp/econ_society/dp/2502R2.pdf
DC.subject	Value-added tax
	Tax reform
	Digital economy
	Platform
	Network externality
DC.description	Revised：Tax Reform on Monopoly Platformer in Borderless Economy: The Incidence on Prices and Efficiency Consequences / Shigeo Morita, Yukihiro Nishimura, Hirofumi Okoshi [25-02-Rev., 2025]
DCTERMS.abstract	The development of online markets has raised ongoing concerns that foreign app service developers are avoiding value-added tax (VAT) in destination countries. To address this issue, some countries have introduced tax reforms that require platforms to pay VAT on behalf of foreign firms based on the sales generated by each firm. This study investigates whether preventing tax leakage through platform taxation improves welfare in the destination country. We first show that taxing foreign firms leads to a reduction in the commission fees charged by the platform to the sellers (developers) which replaces exited foreign developers with domestic ones. However, the increased tax burden also decreases the size of the network user base. Given this trade-off, we demonstrate that whether the domestic welfare increases after the tax reform depends critically on how responsive the sellers’ market entry is to network size. When the tax reform brings welfare gain, it increases with the tax rate and reduces with the initial share of foreign developers. Finally, we show that digitalization mitigates both welfare loss and the platform’s tax avoidance.
DC.format	100217
citation_title	VAT Reform via Monopolistic Platformer in Borderless Economy : Price Pass-Though and Efficiency Consequences
citation_author	Morita, Shigeo
citation_author	Nishimura, Yukihiro
citation_publisher	Graduate School of Economics, Osaka University
citation_language	English
citation_date	2025-07
citation_journal_title	Discussion Papers In Economics And Business
citation_volume	25-02-Rev.2
citation_public_url	https://hdl.handle.net/11094/100217
citation_abstract_html_url	https://www2.econ.osaka-u.ac.jp/econ_society/dp/2502R2.pdf

VAT Reform via Monopolistic Platformer in Borderless Economy : Price Pass-Though and Efficiency Consequences

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