The Cumulative Cost of Regulations

72 Pages Posted: 14 Nov 2016

See all articles by Bentley Coffey

Bentley Coffey

Clemson University

Patrick A. McLaughlin

Mercatus Center at George Mason University

Pietro F. Peretto

Duke University - Department of Economics; Duke Innovation & Entrepreneurship Initiative

Date Written: April 26, 2016

Abstract

We estimate the effects of federal regulation on value added to GDP for a panel of 22 industries in the United States over a period of 35 years (1977–2012). The structure of our linear specification is explicitly derived from the closed-form solutions of a multisector Schumpeterian model of endogenous growth. We allow regulation to enter the specification in a flexible manner. Our estimates of the model’s parameters are then identified from covariation in some standard sector-specific data joined with RegData 2.2, which measures the incidence of regulations on industries based on a text analysis of federal regulatory code. With the model’s parameters fitted to real data, we confidently conduct counterfactual experiments on alternative regulatory environments. Our results show that economic growth has been dampened by approximately 0.8 percent per annum since 1980. Had regulation been held constant at levels observed in 1980, our model predicts that the economy would have been nearly 25 percent larger by 2012 (i.e., regulatory growth since 1980 cost GDP $4 trillion in 2012, or about $13,000 per capita).

Keywords: regulation, economic growth, macroeconomic performance, endogenous growth, Schumpeterian growth, RegData, costs of regulation, total cost of regulation, federal regulation, costs of entry, productivity, total factor productivity, labor productivity

JEL Classification: E20, L50, O40, O30

Suggested Citation

Coffey, Bentley and McLaughlin, Patrick A. and Peretto, Pietro F., The Cumulative Cost of Regulations (April 26, 2016). Duke I&E Research Paper No. 2016-45; Mercatus Research Paper 2016. Available at SSRN: https://ssrn.com/abstract=2869145 or http://dx.doi.org/10.2139/ssrn.2869145

Bentley Coffey

Clemson University ( email )

101 Sikes Ave
Clemson, SC 29634
United States

Patrick A. McLaughlin (Contact Author)

Mercatus Center at George Mason University ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States
(703) 993-9670 (Phone)

HOME PAGE: http://www.patrickamclaughlin.com

Pietro F. Peretto

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1807 (Phone)
919-684-8974 (Fax)

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
159
Abstract Views
975
rank
189,036
PlumX Metrics