Final Exam Economics 139
Prepared Question Prof. Stephen Schmidt

The following question will appear on the final exam on Monday. You are receiving the question in advance so that you can review the class materials and use them in preparing to answer it. You may not discuss this question or your answers to it with other members of the class. The exam will be closed-book; you will not be able to bring notes into the exam, including notes about your intended answer to this question. You will write your answer during the exam. In your preparation, focus on understanding the arguments you will make in your answer so that you can present them clearly and convincingly during the exam.

Question:

Goolsbee and Zittrain argue that one reason that sales taxes cannot be collected on Internet sales is that sales taxes differ from one tax jurisdiction to another. One possible solution to this would be to have sales taxes collected nationally, so that rates would be uniform across the country. Explain the advantages of doing so. Then, use the Tiebout model to explain the disadvantages of doing so. Who would benefit and who would lose if this was done? How would government spending change, at the national and state and local levels? State whether you think sales taxes should be collected at the national level, or state and local level, and justify your position with the advantages and disadvantages you discuss.