Capital Taxation and Market Power

35 Pages Posted: 22 Apr 2023 Last revised: 21 May 2024

See all articles by Kimberly A. Clausing

Kimberly A. Clausing

UCLA School of Law; Peterson Institute for International Economics

Date Written: May 21, 2024

Abstract

In recent decades, market power has increased substantially, according to multiple measures that describe industry concentration, mark-ups, and business profitability. While market power can generate benefits, it also raises vexing policy concerns, including the potential for adverse effects on labor markets, income inequality, and the dynamism of market competition. The concept of market power also has implications for how we conceptualize capital income, making it important to distinguish between normal and above-normal returns to capital. The tax system taxes both types of returns to capital, but often imperfectly and incompletely. Full consideration of the relationship between market power and capital income suggests important implications for optimal capital taxation design, including the role of entity taxation, the use of graduated business tax rates, and international tax reform.

Keywords: capital taxation; corporate taxation; international taxation; market power

JEL Classification: F23, H25, H26, H22, H21

Suggested Citation

Clausing, Kimberly A., Capital Taxation and Market Power (May 21, 2024). Available at SSRN: https://ssrn.com/abstract=4419599 or http://dx.doi.org/10.2139/ssrn.4419599

Kimberly A. Clausing (Contact Author)

UCLA School of Law ( email )

385 Charles E. Young Drive East
Los Angeles, CA 90095-0001
United States

HOME PAGE: http://law.ucla.edu/faculty/faculty-profiles/kimberly-clausing

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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