“any contract... in restraint of trade” and “Every person who shall monopolize, or attempt to monopolize...shall be deemed guilty of a felony” – US Sherman Act (1890)

# **1. Introduction**

In the late 19th century in the United States, rising inequality, social tensions and oligarchy led the federal government to reinvent itself as a regulator. The Sherman Antitrust Act of 1890 is the foundational federal statute in the development of U.S. competition law.<sup>1</sup> At the time, the gilded age called for a forceful response by the federal government to curb the rising power of the so-called robber barons including Cornelius Vanderbilt, John D. Rockefeller and Andrew Carnegie. Fast forward to today, the global rise of a class of billionaires coupled with heightened social tensions raises important questions about what to do about top wealth and income inequality (Wu, 2018). Competition policies and antitrust laws combined with strong enforcement mechanisms have a potentially powerful role to play in shaping the structure of an economy and society over and beyond taxation and redistribution policies. Indeed, protected sectors, cartels or collusion limit the impetus for investment, innovation, and growth (see Aghion and Griffit hs , 2005). The present paper explores the interplay between top wealth and policies, namely regulation and taxation, exploiting variation in exposure to international commodity prices.

The rise of top income and wealth inequality over recent decades is a consistent pattern across the world (Piketty, 2014).<sup>2</sup> Initially the rise of top incomes was documented for the United States and France (Piketty and Saez, 2003; Piketty, 2003), followed by several other advanced economies (Atkinson et al., 2011). Studies on top incomes in developing economies are sparse due to data limitation, but several studies have documented top income trends in developing economies.<sup>3</sup> The rise of top incomes points to a number of concerns including significant welfare losses for workers and associated adverse political consequences (Alesina and Perotti, 1996; Bartels, 2008; Lansing and Markiewicz, 2016). Wealth concentration at the top also raises issues regarding policies including as to whether interventions should be _ex ante_ or _ex post_ ( <mark>Fleurbaey and Peragine, 2013;</mark> Hsu, 2014).

The jury is still out on what drives the rise of top incomes. The literature has identified several factors driving top income and wealth inequality, namely globalization, technology, labor market institutions, decline in competition and fiscal policy—or generally social norms regarding pay inequality (Ma and Ruzic, 2020; Piketty and Saez, 2003; Philippon, 2019; Aghion et al, 2019). Hsu (2014) argues that there are legal roots to top income inequalities which might explain the pervasive higher returns to capital compared to the rate of GDP growth. On the normative front, there is a heated debate on the best approach to address the rise in top incomes. The dominant approach is either to address institutional factors favoring the ability of top income earners to channel rents their way or to reduce the returns to rent seeking by increasing marginal rates of taxation on high incomes (Bivens and Mischel, 2013). More recently, a debate has been raging on the use of a wealth tax as an instrument to reduce top incomes (Saez and Zucman, 2019).<sup>4</sup>

> 1 The Sherman Act gave way to The Clayton Antitrust Act of 1914.

> 2 Notwithstanding the conceptual differences between income inequality and wealth inequality, the two terms are used interchangeably hereafter. In the present paper, we use a measure of wealth inequality. As such the focus of the paper is on latter. In practice, measures of income and wealth inequality are strongly correlated. What is more, data on top incomes using tax administration data are more readily available than top wealth.

> 3 For studies of wealth and income inequality in developing countries, see Banerjee and Piketty, 2005; Leigh and van der Eng, 2009; Freund, 2016; Lopez et al., 2016; and Assouad et al, 2018.

> 4 See the debate hosted by the Peterson Institute for International Economics:

<u>https://www.piie.com/events/combating-inequality-rethinking-policies-reduce-inequality-advanced-economies,</u> accessed May 16, 2020.

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