The impact of fiscal rule changes on digital products trade

Digital product trade, including digitally delivered goods, productized digital outputs, and platform intermediation fees, has expanded rapidly over the past decade. Fiscal rules, however, have not kept pace: the World Trade Organization (WTO) moratorium constrains customs duties on electronic transmissions, while the rising introduction of heterogeneous digital services tax (DST) regimes by individual governments imply that otherwise similar digital transactions face very different fiscal treatment across destinations. Our findings show that digital product trade is sensitive to fiscal wedges, i.e., the policy “add-on” to a cross-border digital transaction, such as a DST rate or a tariff-equivalent charge. Yet the aggregate trade effects of policy changes within observed statutory ranges are moderate in magnitude. Compared to DST, tariffs reduce global digital trade by a larger margin but also generate higher revenues. Importantly, the two regimes differ in their geographic incidence. Tariffs shift the fiscal burden toward countries hosting digital firm headquarters, whereas DST reallocates it toward countries where digital subsidiaries operate. Overall, the results highlight a trade-off between revenue, trade openness, and the geographic allocation of tax burdens in the digital economy. JEL Classification: F13; F14; H25; H87; L86