Scandinavian Working Papers in Economics
Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science
No 2024/6: Business model digitalization, competition, and tax savings
Elisa Casi (), Petro Lisowsky (), Barbara M. B. Stage () and Maximilian Todtenhaupt ()
Additional contact information
Elisa Casi: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
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
Barbara M. B. Stage: WHU - Otto Beisheim School of Management, Postal: WHU – Otto Beisheim School of Management , Burgplatz 2, D-56179 Vallendar, Germany
Maximilian Todtenhaupt: Institute of Public Finance, Leibniz University Hannover, Postal: Leibniz University Hannover , Institute of Public Finance, Königsworther Platz 1, 30167 Hannover, Germany
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
JEL-codes: D40; H25; H26; L22; O33
Language: English
53 pages, March 13, 2024
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