Although citizens value competitive markets and support small businesses, we observe substantial variation in market concentration. Why do politicians abstain from taking action to reduce concentration? We propose an often overlooked political benefit to concentrated markets: When concentration increases, competition is less pronounced and firms earn larger profits. These profits can be taxed for government revenue or used to reward business-friendly politicians. We expect politicians to impose more lenient competition policies toward firms that provide larger sources of revenue. Moreover, this relationship should be especially strong under authoritarian political institutions, where politicians only weakly value the free market and consumer outcomes and where institutional commitments to unbiased policies are weak. We derive our theoretical claims from a formal model. We draw on both cross-country evidence and evidence from Turkey at the firm and industry level to evaluate our claims. We find that as political institutions become less representative, firms that make higher tax payments tend to control more assets, operate in more concentrated industries, and engage in higher value M&As. Our study points to the weak provision of competition policies as a source of rent-seeking.

Over the second half of the 20th century, Greek governments failed to tax business income in line with the country’s level of economic development. This paper uses the “slippery slope” model of tax compliance to explain why the reform of income and corporate taxation in the late 1950s met strong resistance in the business sector. We argue that the negative legacy of interwar reforms, the lack of sustained and credible investment in trust building in coincidence with the postwar reforms, and the intensification of coercive threats in tax enforcement led to an antagonistic tax climate and a degradation of enforced and voluntary compliance. Our qualitative analysis based on original primary sources shows that the arguments publicly voiced by entrepreneurs and their organizations reflected their persistent perception of tax power as unfair, arbitrary and extractive. Using aggregate tax returns data, our quantitative analysis finds evidence of systematic and increasing income underreporting both by unincorporated and incorporated businesses. This vicious circle of non-cooperation and mutual distrust explains why governments got trapped into a persistent low tax capacity equilibrium that still casts a shadow on the Greek economy.

We provide industry-level estimates of the elasticity of substitution (σ) between capital and labor in the United States. We also estimate rates of factor augmentation. Aggregate estimates are produced. Our empirical model comes from the first-order conditions associated with a constant–elasticity of substitution production function. Our data represent 35 industries at roughly the 2-digit SIC level, 1960–2005. We find that aggregate U.S. σ is likely less than 0.620. σ is likely less than unity for a large majority of individual industries. Evidence also suggests that aggregate σ is less than the value-added share-weighted average of industry σ's. Aggregate technical change appears to be net labor–augmenting. This also appears to be true for the large majority of individual industries, but several industries may be characterized by net capital augmentation. When industry-level elasticity estimates are mapped to model sectors, the manufacturing sector σ is lower than that of services; the investment sector σ is lower than that of consumption.