Vertical Diffusion and the Shifting Politics of Electronic Commerce

Since the late 1990s, Congress and the states have debated how to treat electronic commerce for purposes of sales taxation. Frustrated by their limited progress at the national level, advocates of policy change attempted to generate vertical diffusion by using increasingly aggressive state-level actions to press Congress to act. The state initiatives provided national legislators with an “opportunity to learn,” and a systematic analysis of congressional policymaking suggests that vertical diffusion affected the early stages of the legislative process. State policies influenced the specific options that national officials considered, the rhetoric they employed, and, less consistently, bill cosponsorship patterns. The impact of vertical diffusion receded, however, as the congressional debate continued. Its muted effect during the later stages of the legislative process implies that national officials do not necessarily learn from what occurs in the “laboratories of democracy.” In addition to shedding light on the shifting politics of electronic commerce, this study illustrates the benefits both of studying the impact of vertical diffusion on individual decision-making and of conceptualizing vertical diffusion as a process rather than as an outcome to be explained.