Competition Law and Income Inequality: A Panel Data Econometric Approach
39 Pages Posted: 15 Nov 2020 Last revised: 24 May 2021
Date Written: May 21, 2021
It is widely assumed that competition law can affect income inequality. However, scarce empirical evidence supports such a presumption, and little is known about how competition law and inequality are linked (the transmission mechanism). To address this gap, we develop a conceptual framework that links competition law, competition intensity and inequality. We apply this framework to model changes in multiple competition law indices and inequality metrics for a large sample of countries over the period 1960–2010. We find strong empirical support linking competition law and perceived competition intensity which, on the assumption that more intense competition reduces inequality, implies that effective competition law should also be associated with lower inequality. Our subsequent analysis of changes in various competition law indices and inequality metrics is less conclusive. While a negative correlation is observed in the statistics, the relationship is only robust for a small number of inequality measures and competition law indices. On balance, although the results do not conclusively support the presumption of a link between competition law and inequality, they are nevertheless suggestive. To fully understand the relationship we recommend that further analysis is needed which tests more precise transmission mechanisms at different scales (industry, specific markets).
Keywords: Income Inequality, Antitrust, Panel Data, Economic Development
JEL Classification: I32, L40, O4, C33
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