09:30 - 11:10
P11
Room:
Room: Club B
Panel Session 11
César Fuster - Taking care of the Other: the Fiscal Frontier of Redistribution.
Hye Young You - Money and Cooperative Federalism: Evidence from EPA Civil Litigations
Jonghoon Lee - The Politics of Competition Policy and Corporate Taxation
The Politics of Competition Policy and Corporate Taxation
P11-2
Presented by: Jonghoon Lee
Jonghoon Lee 1, Amy Pond 2
1 Texas A&M University
2 Technical University of Munich
As markets become increasingly concentrated, the enforcement of competition law has become an important topic in policy debates. When do politicians support the enactment and enforcement of competition law? This paper examines the policy environment in which competition law is made and applied. We pose a tradeoff between taxation and competition law: Incumbent firms seek both weak competition law and reduced corporate taxation. Because politicians require revenue, the policy bundle most preferred by firms is frequently politically unfeasible. Instead, firms and politicians may agree to weak enforcement of competition policy and in exchange increased tax revenue. This bargain is especially likely under less representative political institutions, where politicians still need revenue but only weakly value consumer outcomes. We derive our theoretical claims from a formal model. To test our claims, we draw on both cross-country and within-county, industry-level data. We find that as political institutions become less representative, higher tax payments are associated with weaker competition policy.