Does the Tax System Favor Superstar Firms?

Influential recent research finds that economic activity is increasingly concentrated in large, highly profitable “superstar firms.” The causes and consequences of the rise of superstar firms are the subjects of intense debate among academics, policymakers, and others. Acting on concerns that superstar firms have tax advantages relative to other firms, policymakers are increasingly designing and enacting additional taxes that target superstar firms. We examine the validity of the underlying assumption that the tax system favors superstar firms, using both forward-looking and backward-looking measures of firms’ tax burdens. Across multiple specifications, we find little empirical support for the idea that superstar firms are tax advantaged. Overall, the evidence suggests that tax advantages generally are not an important factor in explaining which firms rise to superstar status, nor do they appear to be an important factor in sustaining their dominance.

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