# Ordinal Tax To Sustain a Digital Economy

## TL;DR

This paper explores the economic implications of digital taxes and proposes an ordinal distance-based tax to prevent monopolization in digital markets, balancing digital benefits with economic stability.

## Contribution

It introduces a novel ordinal distance tax mechanism that counters monopolization tendencies in digital economies, unlike traditional physical-distance taxes.

## Key findings

- Digital markets are prone to monopolization without transportation costs.
- Ordinal distance tax maintains economic stability in digitalized markets.
- Proposed tax leverages digital benefits while preventing centralization.

## 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.