DP15060 Corporate tax avoidance and industry concentration

Author(s): Julien Martin, Mathieu Parenti, Farid Toubal
Publication Date: July 2020
Keyword(s): industry concentration, IRS Audit Probability, Tax avoidance
JEL(s): D22, D4, F23, H26, L11
Programme Areas: Public Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15060

This paper argues that tax avoidance by large corporations has contributed to the 25% increase in concentration among U.S. firms since the mid-1990s. Corporate tax avoidance gives large firms a competitive edge, which translates into larger market shares and an increase in the granularity of the economy. We develop IV and difference-in-differences strategies that show the causal impact of tax avoidance on firm-level sales. Had firms not resorted to tax avoidance in 2017, our results imply that the average industry concentration would have been 8.3% lower, which is around its early 2000 level.