Macroeconomic Implications of Size-Dependent Policies
Universidad Carlos III de Madrid; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
University of Iowa - Henry B. Tippie College of Business
NYU - Department of Economics
CEPR Discussion Paper No. DP6138
Government policies that impose restrictions on the size of large establishments or firms, or promote small ones, are widespread across countries. In this paper, we develop a framework to systematically study policies of this class. We study a simple growth model with an endogenous size distribution of production units. We parameterize this model to account for the size distribution of establishments and for the (observed) large share of employment in large establishments. Then, we ask: quantitatively, how costly are policies that distort the size of production units? What is the impact of these policies on productivity measures, the equilibrium number of establishments and their size distribution? We find that these effects are potentially large: policies that reduce the average size of establishments by 20% lead to reductions in output and output per establishment up to 8.1% and 25.6% respectively, as well as large increases in the number of establishments (23.5%).
Number of Pages in PDF File: 55
Keywords: Establishment size, productivity differences, size distortions
JEL Classification: E23, O40working papers series
Date posted: May 19, 2008
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