Competition Law and Income Inequality: A Panel Data Econometric Approach

Abstract

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 ‎