| Abstract: |
This paper attempts to draw some lines regarding the interplay between market
concentration and income inequality in the Brazilian economy. Our goal is to
uncover some of the mechanisms by which market power influences macroeconomic
aggregates and, consequently, indicators such as the share of the income
appropriated by the richest and the Country's Gini index. For this purpose, we
have first conducted an empirical estimation using a PVAR approach with data
from Brazilian states. We found that the markup shock is positively related to
inequality. Moreover, that result is robust to changes in the model
specification or different Cholesky ordering. Second, we built a dynamic
general equilibrium model and calibrated it to reproduce the Brazilian
economy. The model has three representative agents and heterogeneity in asset
market participation and labor supply/skills. Additionally, firms exhibit
endogenous oligopolistic and oligopsonistic (in the labor market) behavior. In
response to unexpected markup shocks, the model showed a regressive dynamic,
transferring income from the bottom to the top of the distribution.
Nevertheless, its effects on economic growth may be positive in the short
term, due to the increased investment in creating new companies. The
disturbances in the TFP reduce inequality on impact, which is due to the
countercyclical behavior of the markup. Instead, when we allow the TFP shock
to be correlated with the markup, this effect is reversed, with the largest
share of income being appropriated by the wealthiest. Finally, it is
noteworthy that the labor supply elasticities partially determine the behavior
of income distribution between poor and middle-class households. |