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arXiv · 1908.03287

Ordinal Tax To Sustain a Digital Economy

Nate Dwyer·Sandro Claudio Lera·Alex Sandy Pentland
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Abstract

Recently, the French Senate approved a law that imposes a 3% tax on revenue generated from digital services by companies above a certain size. While there is a lot of political debate about economic consequences of this action, it is actually interesting to reverse the question: We consider the long-term implications of an economy with no such digital tax. More generally, we can think of digital services as a special case of products with low or zero cost of transportation. With basic economic models we show that a market with no transportation costs is prone to monopolization as minuscule, random differences in quality are rewarded disproportionally. We then propose a distance-based tax to counter-balance the tendencies of random centralisation. Unlike a tax that scales with physical (cardinal) distance, a ranked (ordinal) distance tax leverages the benefits of digitalization while maintaining a stable economy.

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Nate Dwyer, Sandro Claudio Lera, Alex Sandy Pentland. 2019-08-06. Ordinal Tax To Sustain a Digital Economy. https://arxiv.org/abs/1908.03287

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