The costs of firm growth

Enrico Miglino () and Giacomo Roma ()
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Enrico Miglino: Bank of Italy
Giacomo Roma: Bank of Italy

No 1018, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Regulation often relies on size thresholds to determine the applicable legal and tax regime. Using data on the universe of Italian firms, this paper estimates the costs of firm growth by measuring the extent to which firms bunch just below such thresholds in order to avoid more burdensome rules. We first identify all the rules, defined in terms of revenues, assets and employment, which generate bunching. We then embed the estimated bunching in a profit maximization model and estimate a behavioural elasticity specific to each underlying variable, leveraging directly observable costs to calibrate the model. Finally, we combine the estimated elasticities with the observed bunching at each threshold to quantify the costs of all regulations. The largest costs, relative to the average value added for firms located near the threshold, are associated with the loss of a flat-tax regime for the self-employed, followed by the loss of simplified bookkeeping and quarterly VAT settlement, the mandatory appointment of a board of statutory auditors, and the increase in worker protection in the event of dismissal.

Keywords: regulatory costs; firm growth; size thresholds; bunching (search for similar items in EconPapers)
JEL-codes: D22 H25 H32 K22 L51 (search for similar items in EconPapers)
Date: 2026-06
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