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Corporate Tax Avoidance and Industry Concentration

Author

Listed:
  • Julien Martin

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

  • Mathieu Parenti

    (ECARES - European Center for Advanced Research in Economics and Statistics - ULB - Université libre de Bruxelles)

  • Farid Toubal

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper investigates the influence of corporate tax avoidance (CTA) on industry concentration in the U.S. since the mid-1990s. A simple model shows CTA increases concentration if (i) CTA gives a competitive advantage to avoiding firms, and (ii) CTA of large relative to small firms increases. We find a positive and causal impact of CTA on firm-level sales using three alternative identification strategies. We then show CTA increases more among the largest firms in most industries, which reinforces their dominant position. In key industries, the differences in tax aggressiveness between large and small firms explain 10% to 30% of the increase in concentration over the last 25 years. CTA-induced changes in the CR4 index influence industrial real output to an extent that is relevant at the macroeconomic scale.

Suggested Citation

  • Julien Martin & Mathieu Parenti & Farid Toubal, 2021. "Corporate Tax Avoidance and Industry Concentration," Working Papers hal-03411574, HAL.
    • Handle: RePEc:hal:wpaper:hal-03411574
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    Citations

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    Cited by:

    1. Margarita Lopez-Forero, 2024. "Aggregate Labor Share and Tax Havens: Things are not always what they seem," Working papers 982, Banque de France.
    2. Sánchez-Ballesta, Juan Pedro & Yagüe, José, 2023. "Tax avoidance and the cost of debt for SMEs: Evidence from Spain," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(2).
    3. Coppier, Raffaella & Michetti, Elisabetta & Scaccia, Luisa, 2024. "Dimensional traps in evasion models and their effects on industrial structure," Economic Modelling, Elsevier, vol. 132(C).
    4. Paul-Emile Bernard, 2025. "How Does Political Connection Affect Resource Allocation in China," Working Papers DT/2025/05, DIAL (Développement, Institutions et Mondialisation).
    5. Gauß, P. & Kortenhaus, M. & Riedel, N. & Simmler, M., 2024. "Leveling the playing field: Constraints on multinational profit shifting and the performance of national firms," Journal of Public Economics, Elsevier, vol. 234(C).
    6. Bricongne, Jean-Charles & Delpeuch, Samuel & Lopez-Forero, Margarita, 2023. "Productivity slowdown and tax havens: Where is measured value creation?," Journal of International Economics, Elsevier, vol. 143(C).
    7. Annette Alstadsæter & Julie Brun Bjørkheim & Ronald B. Davies & Johannes Scheuerer, 2022. "Pennies from Haven: Wages and Profit Shifting," Working Papers 002, EU Tax Observatory.
    8. Margarita Lopez Forero & Benjamin Michallet, 2024. "Employment Effects of a Weakening in European Anti-Tax Avoidance Rules: evidence from France," Working Papers 021, EU Tax Observatory.
    9. Massenz, Gabriella, 2023. "On the behavioral effects of tax policy," Other publications TiSEM eb44a9f7-b859-480d-b2e4-4, Tilburg University, School of Economics and Management.
    10. Jean-Charles Bricongne & Samuel Delpeuch & Margarita Lopez Forero, 2021. "Productivity Slowdown, Tax Havens and MNEs’ Intangibles: where is measured value creation?," Documents de recherche 21-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    11. Jean-Charles Bricongne & Samuel Delpeuch & Margarita Lopez Forero, 2021. "Regional Productivity Slowdown, Tax Havens and MNEs Intangibles: where is Measured Value Creation?," Working papers 835, Banque de France.
    12. Tommaso Bighelli & Filippo di Mauro & Marc J Melitz & Matthias Mertens, 2023. "European Firm Concentration and Aggregate Productivity," Journal of the European Economic Association, European Economic Association, vol. 21(2), pages 455-483.
    13. Joana Garcia, 2022. "Multinationals and services imports from havens: when policies stand in the way of tax planning," Working Papers w202214, Banco de Portugal, Economics and Research Department.
    14. Aleksi Eerola & Arjen H. L. Slangen, 2022. "A Review of International Management Research on Corporate Taxation," Management International Review, Springer, vol. 62(5), pages 643-680, October.

    More about this item

    Keywords

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    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
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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