Internet, Participation in International Trade, and Tax Revenue Instability

Abstract

This study investigates the effect of the Internet on tax revenue instability (TRI), notably through the international trade channel. It used a sample of 142 countries over the period 1995-2017 and relied primarily on the two-step system generalized method of moments estimator. The findings indicate that greater access to the Internet negatively affects TRI, and this effect works through the trade openness avenue. Especially, countries enjoy a higher negative effect of the Internet on TRI as they experience a greater trade openness. Moreover, Internet access reduces TRI in countries that have experienced a greater extent of tax reform and a greater export product concentration. Therefore, these findings add to the potential benefits of Internet adoption by showing that it could also help stabilize tax revenue, particularly through countries’ participation in international trade.