NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Corina Boar

Department of Economics
New York University
19 West 4th Street
New York, NY 10003
Tel: 585/775-7686

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NBER Program Affiliations: EFG
NBER Affiliation: Faculty Research Fellow
Institutional Affiliation: New York University

NBER Working Papers and Publications

June 2019Markups and Inequality
with Virgiliu Midrigan: w25952
We study the aggregate and distributional impact of product market interventions and profit taxes using a model of firm dynamics, credit constraints and incomplete markets. A key ingredient of our model is that markups are endogenous so that the markup a producer charges depends on the amount of competition it faces. We show that size-dependent subsidies that remove the distortions due to markup dispersion lead to sizable welfare gains and reduce inequality, even though they increase firm concentration and long-run misallocation. In contrast, policies that reduce concentration lead to large output, TFP and welfare losses and increase inequality. A tax on profits greatly depresses the incentives to create new firms, reducing labor demand, after-tax wages and welfare.
 
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