Working Paper: CEPR ID: DP15060
Authors: Julien Martin; Farid Toubal
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. Using three identification strategies, we find a causal impact of CTA on sales in US firm-level data. In the US, CTA increased more among the largest firms, which has reinforced their dominant position. In key industries, trends in CTA firms explain 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.
Keywords: tax avoidance; distorted sales; industry concentration; IRS audit probability
JEL Codes: D22; H26; L11; D4; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Corporate Tax Avoidance (H26) | Competitive Advantage (L19) |
| Increase in Corporate Tax Avoidance among Larger Firms (H26) | Rising Industry Concentration (L19) |
| Corporate Tax Avoidance (H26) | Distortions on Industrial Output (L16) |
| Corporate Tax Avoidance (H26) | Firm-Level Sales (D22) |
| Increase in Corporate Tax Avoidance (H26) | Higher Firm-Level Sales (L25) |