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No More than Double: Can a Single Rule Tame Capitalism?

Author

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  • Lorenzo Esposito
  • Giuseppe Mastromatteo

Abstract

Capitalism's defining feature--profit maximization without limits--drives instability, inequality, and environmental degradation. Traditional policies such as taxation and regulation have failed to curb this dynamic because they do not alter firms' core incentives. This paper proposes a simple yet structural solution: a "maximum allowed profitability" (MAP) rule that caps a firm's return on equity at twice the median ROE of its peers. Profits exceeding this threshold would be fully taxed, creating a hard limit on excessive profit-seeking and reducing systemic risk. Using ORBIS data for major European economies (2002-2021), we show that profitability distribution is stable, making MAP feasible and easy to implement. Unlike conventional fiscal or monetary tools, MAP directly addresses the prisoner's dilemma inherent in capitalism, fostering a more balanced economic system. While global coordination is essential, MAP could complement initiatives like the OECD global minimum tax, reshaping incentives toward sustainable growth.

Suggested Citation

  • Lorenzo Esposito & Giuseppe Mastromatteo, 2025. "No More than Double: Can a Single Rule Tame Capitalism?," Economics Working Paper Archive wp_1102, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_1102
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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