Does the Tax System Favor Superstar Firms?

Abstract

Influential research finds that economic activity is increasingly concentrated in large, highly profitable "superstar firms," potentially leading to adverse outcomes such as decreased competition and entrenchment. Acting on concerns that the tax system favors superstar firms, policymakers are increasingly targeting superstar firms with tax increases. We test the validity of the underlying assumption that superstar firms are tax advantaged, using both forward-looking and backward-looking tax burden measures. Overall, we find little evidence that superstar firms systematically pay lower taxes than their non-superstar competitors or smaller profitable firms, casting doubt on the idea that the tax system favors superstar firms.

Keywords: superstar firms, corporate taxes

JEL Classification: H25, H26, M21, L22, L41