Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jan, 2023, Volume 91, Issue 1

Nexus Tax Laws and Economies of Density in E-Commerce: A Study of Amazon's Fulfillment Center Network

https://doi.org/10.3982/ECTA15265
p. 147-190

Jean‐François Houde, Peter Newberry, Katja Seim

We quantify the distortionary effects of nexus tax laws on Amazon's distribution network investments between 1999 and 2018. We highlight the role of two features of the expansion of Amazon's network: densification of the network of distribution facilities and vertical integration into package sortation. Densification results in a reduction in the cost of shipping orders, but comes at the expense of higher facility operating costs in more expensive areas and lower scale economies of processing shipments. Nexus laws furthermore generate additional sales tax liabilities as the network grows. Combining data on household spending across online and offline retailers with detailed data on Amazon's distribution network, we quantify these trade‐offs through a static model of demand and a dynamic model of investment. Our results suggest that Amazon's expansion led to significant shipping cost savings and facilitated the realization of aggregate economies of scale. We find that abolishing nexus tax laws in favor of a non‐discriminatory tax policy would induce the company to decentralize its network, lowering its shipping costs. Non‐discriminatory taxation would also entail lower revenue, however, as tax‐inclusive prices would rise, resulting in a fall in profit overall. This drop and the decline in consumer welfare from higher taxes together fall short of the increases in tax revenue and rival profit, suggesting that the abolishment of nexus laws would lead to an increase in total welfare.


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Supplemental Material

Supplement to "Nexus Tax Laws and Economies of Density in E-Commerce: A Study of Amazon’s Fulfillment Center Network"

Houde, Jean-François, Peter Newberry, and Katja Seim

This zip file contains replication files for the manuscript.  It also contains an additional supplemental appendix with material not found within the manuscript.

Supplement to "Nexus Tax Laws and Economies of Density in E-Commerce: A Study of Amazon’s Fulfillment Center Network"

Jean-François Houde, Peter Newberry, and Katja Seim

This online appendix contains material not found within the manuscript.

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