A Tax-Shaped Retail Landscape

We investigate the impact tax policies have on shaping the retail landscape. An entry model highlights demonstrates that tax effects on retailer entry can amplify market concentration. Using data about retail establishments in the United States, we uncover a few main insights. We first confirm that establishments are more (less) likely to open in markets with favorable (unfavorable) state tax policies. At the same time, markets become more (less) concentrated with favorable (unfavorable) state tax policies. Finally, we illustrate, using an empirical example about home improvement chains, how our model insights can help design tax policies