Corporate Tax Planning and Industry Concentration

Recent research has documented that industry concentration has increased significantly over the past 25 years, with potentially negative consequences for productivity, innovation, and social welfare. Some have suggested that corporate tax planning, which has also increased over the same period, has contributed in part to this trend. We provide large-sample empirical evidence on whether tax planning is associated with industry concentration. We document five main results. First, we find that industry leaders engage in more aggressive tax planning relative to their closest competitors in only half of industries, and this percentage has not changed materially over our sample period. Second, we find that whether aggressive tax planning by industry leaders is associated with increased industry concentration depends critically on the extent to which their competitors are also engaging in aggressive tax planning. Third, we find that tax planning by industry leaders explains very little of the trend in increased industry concentration across the full sample. Fourth, we find that industries with plausibly tax planning-induced concentration generally do not exhibit lower productivity growth than other industries. Finally, we find that industries where leaders engage in more tax planning than competitors are not materially different from other industries in terms of key characteristics that are likely of concern to policymakers (such as industry capitalization or employment). Collectively, our findings suggest that corporate tax planning is not a material driver of increased industry concentration on average or in key industries, nor is corporate tax planning associated with reduced industry-level productivity .