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Regulation, entrepreneurship, and firm size

Dustin Chambers (), Patrick A. McLaughlin () and Tyler Richards ()
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Dustin Chambers: Salisbury University
Patrick A. McLaughlin: Mercatus Center at George Mason University
Tyler Richards: George Mason University

Journal of Regulatory Economics, 2022, vol. 61, issue 2, No 2, 108-134

Abstract: Abstract We empirically investigate the theory that regulatory growth within an industry disproportionately burdens small businesses relative to their larger competitors. Using RegData 3.0, we find that a 10% increase in industry-specific regulatory restrictions is associated with a 0.5% reduction in the number of firms regardless of firm size, but a 0.6% reduction in employment only among small firms. We also find that consecutive years of high regulatory growth amplify the associated negative effects of future regulations on the number and employment of small firms, but we find no amplifying effects for large firms. Finally, we find that higher regulatory growth rates are associated with lower job destruction rates among establishments owned by large firms. These findings are consistent with the Public Choice theory of regulation and imply that regulatory growth leads to fewer small businesses and reduced small business employment, with minimal negative impacts on large businesses.

Keywords: Entrepreneurship; Regulation; Regulatory accumulation; Small business; Firm size; Industry concentration (search for similar items in EconPapers)
JEL-codes: D73 L51 L53 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11149-022-09446-7

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