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The heterogenous effects of a higher volume of regulation: evidence from more than 200k Spanish norms

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Abstract

We analyze the aggregate economic impacts, as well as the heterogeneous effects on the different types of enterprises, of the increasing volume of regulation observed in Spain between 1995 and 2000. Our novel database classifies more than 200,000 regulations adopted at the region level for 13 industries (sectors) of the Spanish economy. Exploiting this database, we are able to estimate the exposure to regulation of enterprises located in different Spanish regions. We find that an increase in the volume of regulations has an impact on economic activity, reducing employment. Entry of new firms in sectors-regions exposed to higher regulation is also lower. These effects are heterogeneous across firms, with negative effects concentrated in smaller and more recently established firms. This evidence emphasizes the importance of both the aggregate and distributional impact of the changing (increasing) volumes of regulation.

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Notes

  1. We can certainly cite the more “classic” works in this regard such as North (1981, 1990a, 1999) but also more recent examples such as Afonso (2022).

  2. The “positive” and “negative” views of regulation may also be confronted from microeconomic theory. According to the Second Welfare Theorem, redistributive regulation could achieve a more efficient allocation (Peltzman et al., 1989). On the other hand, from a negative point of view, Laffont and Tirole (1993) point out that market failures are a necessary but not sufficient condition for regulation to exist, since regulation could have a restrictive effect for informational, transactional or administrative-political reasons.

  3. See the references for the analysis of the U.S. case mentioned throughout this article.

  4. In one branch of literature, the volume of regulation is one of the forms that “regulatory complexity” takes (see Di Vita (2018), Di Vita and Ferrante (2021) or De Lucio & Mora-Sanguinetti, 2022).

  5. Andalusia, Aragon, Asturias, Balearic Islands, Canary Islands, Cantabria, Castilla La Mancha, Castilla y Leon, Catalonia, Extremadura, Galicia, La Rioja, Madrid, Murcia, Navarra, Basque Country, Valencian Community.

  6. Agriculture, mining and quarrying; food products, beverages and tobacco; textiles and wearing apparel; wood and paper products; coke and refined petroleum products; chemicals; rubber and plastics products; basic metals and fabricated metals; computer, electronic and optical products; machinery and equipment; transport equipment; other manufacturing, electricity, gas and water supply; construction; wholesale and retail services; transportation and storage services; accommodation and food services; information and communication services; financial and insurance services; real estate activities; professional, scientific and technical services; arts, entertainment and recreation services.

  7. Table 2 of Mora-Sanguinetti and Soler (2022) publishes the complete list of keywords. As an example, sector F (construction) includes the following terms regulated in Spanish law: construcción, ingeniería civil, rehabilitación, urbanismo, promoción inmobiliaria, demolición, preparación de terrenos, fontanería, revocamiento, carpintería, revestimiento, pintura, acristalamiento, carreteras, vías férreas, túneles, puentes, obras hidráulicas. A non-legal translation of these concepts in English is: construction, civil engineering, refurbishment, urban planning, real estate development, demolition, land development, plumbing, plastering, plastering, carpentry, coating, painting, glazing, roads, railways, tunnels, bridges, waterworks.

  8. By way of reference, during this period, the regions (Autonomous Communities) adopted 219,903 norms (and all the administrations as a whole adopted 300,769). For the sake of completeness, it should be noted that the Autonomous Communities, in the entire democratic period (1979–2022) adopted 286,459 norms and the whole of all the administrations 414,272. See also Mora-Sanguinetti (2022).

  9. Precisely, the most affected sectors by the COVID, like hospitality, recreational services or textiles, were the ones with the biggest increase in the volume of new laws.

  10. See Betancor (2009) or Doménech Pascual (2005) for an extension of this issue in the specific case of Spain.

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Authors and Affiliations

  1. Banque de France - Eurosystème, 39 Rue Croix des Petits Champs, Paris, 75001, France

    Juan S. Mora-Sanguinetti

  2. Banco de España – Eurosistema, C/ Alcalá, 48, Madrid, 28014, Spain

    Juan S. Mora-Sanguinetti & Javier Quintana

  3. European University Institute (EUI), Florence, Italy

    Isabel Soler

  4. School of Economics and Business, University of Ljubljana, Kardeljeva ploscad 17, Ljubljana, SI-1000, Slovenia

    Rok Spruk

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The views expressed are those of the authors and should not be attributed to the Banco de España, the Banque de France or the Eurosystem. We are grateful to the comments of the anonymous referees who reviewed the Working Paper and the Journal versions of this article. We also thank the suggestions of the participants at the research seminar of the Banco de España – Eurosystem, the 2022 Annual Conference of the Spanish Association of Law and Economics (AEDE) and the 2022 Conference of the French Association of Law & Economics (AFED) (Montpellier).

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Mora-Sanguinetti, J.S., Quintana, J., Soler, I. et al. The heterogenous effects of a higher volume of regulation: evidence from more than 200k Spanish norms. J Regul Econ 65, 137–153 (2024). https://doi.org/10.1007/s11149-023-09466-x

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