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Corporate tax avoidance and sales: micro evidence and aggregate implications

Author

Listed:
  • Julien Martin

    (Université du Québec à Montréal and CEPR)

  • Mathieu Parenti

    (Université Libre de Bruxelles and CEPR)

  • Farid Toubal

    (Université Paris-Dauphine-PSL, CEPII, CESifo and CEPR)

Abstract

This paper investigates the influence of corporate tax avoidance (CTA) on firm-level sales, and its aggregate implications. CTA gives a competitive advantage to avoiding firms, which affects the distribution of sales in the economy. We find a causal impact of CTA on sales in US firm-level data. CTA increased more among the largest firms, which has reinforced their dominant position. A quantitative exercise reveals that the strength of CTA in shaping changes in the distribution of sales varies across industries. In industries like computers or chemicals, CTA can explain up to 10%-30% of the increase in concentration from 1994 to 2017. Further analysis shows the impact of CTA-induced distortions on industrial output is relevant at a macroeconomic scale.

Suggested Citation

  • Julien Martin & Mathieu Parenti & Farid Toubal, 2023. "Corporate tax avoidance and sales: micro evidence and aggregate implications," Working Papers 016, EU Tax Observatory.
    • Handle: RePEc:dbp:wpaper:016
    as

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    File URL: https://www.taxobservatory.eu//www-site/uploads/2023/05/EUTO_WP16_Corporate-Tax-Avoidance-and-Sales_May2023pdf
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    More about this item

    Keywords

    Tax Avoidance; Distorted Sales; Industry Concentration; IRS Audit Probability;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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