# Federal regulation and aggregate economic growth

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## Abstract

We introduce a new time series measure of the extent of federal regulation in the U.S. and use it to investigate the relationship between federal regulation and macroeconomic performance. We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce it—total factor productivity (TFP), physical capital, and labor. Regulation has caused substantial reductions in the growth rates of both output and TFP and has had effects on the trends in capital and labor that vary over time in both sign and magnitude. Regulation also affects deviations about the trends in output and its factors of production, and the effects differ across dependent variables. Regulation changes the way output is produced by changing the mix of inputs. Changes in regulation offer a straightforward explanation for the productivity slowdown of the 1970s. Qualitatively and quantitatively, our results agree with those obtained from cross-section and panel measures of regulation using cross-country data.

## Keywords

Regulation Macroeconomic performance Economic growth Productivity slowdown## JEL classification

E20 L50 O40## Notes

### Acknowledgments

We thank Michele Boldrin, Tim Bollerslev, Michelle Connolly, Simeon Djankov, Ronald Gallant, Thomas Grennes, Bruce Hansen, Bang Jeon, Christopher Laincz, Oksana Leukhina, Aart Kraay, John Lapp, Marcelo Oviedo, Douglas Pearce, Denis Pelletier, Pietro Peretto, Martin Rama, George Tauchen, an anonymous referee, and an anonymous Associate Editor for helpful comments. We are also grateful to Amit Sen for providing finite-sample critical values for the Zivot–Andrews test. The regulation and marginal tax rate data are available on Seater’s website at: http://www4.ncsu.edu/~jjseater/index_003.htm.

## Supplementary material

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