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Sector-level economic effects of regulatory complexity: evidence from Spain

Author

Listed:
  • Juan S. Mora-Sanguinetti

    (Banco de España)

  • Javier Quintana

    (Banco de España)

  • Isabel Soler

    (EUROPEAN UNIVERSITY INSTITUTE (EUI))

  • Rok Spruk

    (UNIVERSITY OF LJUBLJANA)

Abstract

This paper studies for the first time the impact on various measures of economic efficiency of regulatory complexity by sector in Spain. We base our analysis on an innovative database that classifies 206,777 regulations by economic sector and region, which highlights the growing volume of regulation, as well as its diversity by sector, region and business cycle stage. This analysis first looks at the aggregate impacts of sectoral regulatory complexity on the employment-to-population ratio, total working hours, sectoral GDP shares, labour intensity and capital intensity. Secondly it delves into the heterogeneous impacts observed across firms of different sizes and ages, drawing on the MCVL (Continuous Work History Sample), a rich database at the enterprise level. On the first front, we estimate a set of multiple fixed-effects model specifications across 13 economic sectors, 23 regulatory sectors and 17 Spanish regions over the period 1995-2020. Our results suggest that greater regulatory complexity has a negative impact on the employment rate and on value added. The effect on employment is consistent with previous findings for the United States. In particular, ceteris paribus, each additional increase in the regulatory complexity index is associated with a 0.7 percent drop in the sector-level employment share. Furthermore, our findings suggest that several distortionary sector-level effects of increasing regulatory complexity are taking place. For instance, markedly lower labour intensity and decreased sector-level investment rates, which confirm that greater regulatory complexity entails non-trivial sector-level costs. Distortionary effects of regulatory complexity materialise through compositional differences, mainly in the form of reduced wages and a lower investment rate. On the second front, using data on employment by firms’ characteristics, we show that the negative impact of regulatory complexity is concentrated on smaller and younger firms. This finding supports the hypothesis that greater regulatory complexity imposes a burden that small and less experienced firms are less able to handle. At the sector level, the manufacturing sectors are the most negatively affected. This may be related to the higher investment required by these sectors.

Suggested Citation

  • Juan S. Mora-Sanguinetti & Javier Quintana & Isabel Soler & Rok Spruk, 2023. "Sector-level economic effects of regulatory complexity: evidence from Spain," Working Papers 2312, Banco de España.
    • Handle: RePEc:bde:wpaper:2312
    DOI: https://doi.org/10.53479/29854
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    Cited by:

    1. Juan S. Mora-Sanguinetti & Laura Hospido & Andrés Atienza-Maeso, 2024. "Is Equality Regulation Effective in Reducing Gender Gaps in the Labor Market? Quantification and Evidence for Spain," Working papers 943, Banque de France.
    2. Juan S. Mora-Sanguinetti & Andrés Atienza-Maeso, 2023. ""Green regulation": a quantification of regulations related to renewable energies and climate change in Spain and France," Working papers 937, Banque de France.

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    More about this item

    Keywords

    sectoral regulation; regulatory complexity; economic sectors; structural policies; employment;
    All these keywords.

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • J00 - Labor and Demographic Economics - - General - - - General
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy

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