Regulatory red tape and private firm performance

Abstract

Regulation may obstruct dynamic adaptation, innovative power, and entrepreneurial activity. On the other hand, regulation could be interpreted as a phenomenon which society just has to learn to live with, and which otherwise does no real economic harm. This article explores both of these hypotheses. We study the impact of three dimensions of regulatory red tape on the performance of private companies: regulation cost, regulation change, and regulation inconsistency. We analyse unique survey data from 530 Dutch private companies. The results show that regulation cost, inconsistency, and change limit sales turnover growth, and that regulation change hampers market competition performance.