Working Paper: CEPR ID: DP17814
Authors: Francesco Trebbi; Miao Zhang
Abstract: We quantify firms’ compliance costs of regulation from 2002 to 2014 in terms of their labor input expenditure to comply with government rules, a primary component of regulatory compliance spending for large portions of the U.S. economy. Detailed establishment-level occupation data, in combination with occupation-specific task information, allow us to recover the share of an establishment’s wage bill owing to employees engaged in regulatory compliance. Regulatory costs account on average for 1.34 percent of the total wage bill of a firm, but vary substantially across and within industries, and have increased over time. We investigate the returns to scale in regulatory compliance and find an inverted-U shape, with the percentage regulatory spending peaking for an establishment size of around 500 employees. Finally, we develop an instrumental variable methodology for decoupling the role of regulatory requirements from that of enforcement in driving firms’ compliance costs.
Keywords: regulation; compliance costs; political economy
JEL Codes: P0; P48; D72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| enforcement efforts (K40) | compliance costs (Q52) |
| regulatory requirements (L51) | enforcement efforts (K40) |
| regulatory requirements (L51) | compliance costs (Q52) |
| regulatory changes (G18) | compliance costs (Q52) |
| size of establishment (L25) | regulatory compliance costs (L51) |
| size of establishment (L25) | compliance costs (Q52) |