The Macroeconomic Effects of Federal Regulation

John W. Dawson () and John J. Seater ()

No 05-02, Working Papers from Department of Economics, Appalachian State University

Abstract: We introduce a new 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, physical capital, and labor. The effects are multifaceted and complex. Regulation changes the way output is produced by changing the mix of inputs. It also affects both the trends and deviations about the trends in output and its factors of production, and the effects differ across dependent variables. The effects display interesting intertemporal dynamics. Changes in regulation and marginal tax rates offer an explanation for the productivity slowdown of the 1970s. Regulation also has substantial opportunity costs in the form of foregone output.

New Economics Papers: this item is included in nep-mac and nep-reg
Date: 2005
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