There is a consensus over Europe’s transformation into a highly competitive economy through a series of ambitious pro-competition reforms. However, both the European Commission and national actors have legislative authority over competition policies. Thus, who are the critical actors behind this legislative and economic transformation in this multi-level system? Focusing on the liberalization of state-owned industries and using a staggered difference-in-differences approach, the paper shows that the effectiveness of European directives in decreasing firm-level market power increased with the extent of preceding domestic pro-competition reforms. For every unit increase of the early domestic reform index, EU directives decrease market power in liberalized industries by an additional 7.8%. However, this effect is not significant in countries that did not reform their industries ex-ante. This finding contradicts the established view in the literature identifying the Commission as the dominant force driving this transformation, which implemented ambitious reforms by often overcoming the resistance of reluctant national governments. Instead, it is shown that the effectiveness of the Commission’s reforms depends on the support of domestic actors and compatible national institutions.

This paper reviews the literature providing quantitative and empirical results on capital taxation. In doing this, we differentiate between individual and corporate taxes, respectively. From existing literature, it emerges that capital income taxes for individuals increase with the degree of heterogeneity within the population, market competition, and the economy's maturity, being negative (i.e., subsidy) in the presence of monopolistic competition or developing countries, no higher than 15% in Mirrleesian economies and as high as 45% when coupled with incomplete insurance markets and labor income taxes in competitive-closed economies. Excessively high wealth tax rates for redistributive purposes, however, are prevented by the larger tax elasticity of rich (−1.15) with respect to poor (−0.09) individuals. Negative tax elasticities concerning employment (from −0.5 to −0.2), innovation (from −2.8 to −1.3), and investments (−4.7) suggest low corporate taxes, whose magnitude should be negatively related to the degree of the economy's openness, given also the possibility for firms to relocate abroad. Finally, although still inconclusive, the main conclusions concerning dividend taxes suggest that tax rates increase with the firm's size and, thus, be set at low levels for start-ups.

How does market power affect rich democracies? As the growing market power of large multinational firms has fundamentally changed the opportunity structure for small businesses and their beneficiaries, we try to understand how those economic developments influence European democracies. We argue that growing market power lowers small business owners' trust in key democratic institutions and the functioning of markets, driving them to reject incumbents and shift their support to radical right parties. We employ firm-level, individual-level, and regional-level data on fourteen European countries to test this argument using a series of quasi-experimental methodologies. Our findings indicate that rising market power, measured by combining mergers and increases in market concentration, is associated with the declining economic performance of micro-firms. In turn, mergers and the declining economic share of these firms are robust predictors of anti-incumbent and increased radical right voting both at the individual and constituency levels. This paper provides the first analysis of the effect of market concentration on rich democracies and, in doing so, offers a novel explanation for the surprising radical right support among small business owners in Europe.

How does the interaction between supranational and domestic institutions affect competition? We answer this question by investigating how the Euro has radically changed the rules of the competition game between firms. Using a staggered difference-in-differences design, we find that the Euro, as a supranational institution, has increased firm-level market power between 23 and 30 percent after its adoption. Deepening economic integration creates a stronger competitive environment where superstar firms acquire a dominant position. Consistent with this explanation, the Euro effect on market power is between 8 and 9 percent larger for tradable industries and 10 and 17 percent larger for firms in the top percent of the Eurozone pre-Euro productivity distribution. This rise in market power is mainly driven by changes in labor market power (i.e., lower markdowns) that more than compensate for the increase in product market competition (i.e., lower markups). Counterintuitively, we also find that unions, under certain conditions, can increase the market power of superstar firms. This happens in the presence of domestic cooperation-enhancing institutions that favor agreements between labor and capital and raise firms’ competitiveness by diminishing markdowns. Successful labor-capital cooperation positively impacts workers' attitudes toward further European integration. Our findings contribute to the debate over the rise of global market power by embedding this phenomenon into an institutional framework, creating an inherently European version of the superstar hypothesis.

One of the defining features of the European legislative framework in recent decades has been the radical revolution in competition policy. The established view in the literature conceptualizes the European Commission as the critical agent independently advancing this ambitious reform agenda, often in contrast to domestic political and economic interests. Yet, national governments have historically been jealous of their strategic sectors and reluctant to open them to competition. At the same time, powerful industrial interest groups have often had a strong influence over European competition policy. What is then the role of governments and industrial interests in this unparalleled change in competition policy? I answer this question by developing a model where policies result from a multilevel bargain between the European Commission, governments, and national champions. The main contribution of the model is that more ambitious policies result from aligned interests between the Commission, productive firms, and more pro-market governments. This result thus departs from the view that considers the Commission as the agent promoting competition policy independently and in contrast with domestic political and economic interests. The model is applied to the liberalization reforms affecting historically shielded industries in the 1990s and early 2000s, and the predictions are tested using a reduced-form empirical strategy that relies on event-study difference-in-differences.