DP6610 Deregulation of Business

Author(s): Evgeny Yakovlev , Ekaterina Zhuravskaya

Publication Date: December 2007

Keyword(s): Deregulation , Enforcement , Entry , Public choice , Reform , Regulation , Transparency

JEL(s): H10 , K2 , K20 , L50

Programme Areas: Development Economics , Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP6610.asp.asp

What determines the enforcement of deregulation reform of business activities? What are the outcomes of deregulation? We address these questions using an episode of a drastic reform in Russia between 2001 and 2004 which liberalized registration, licensing, and inspections. Based on the analysis of micro-level panel data on regulatory burden, we find that: 1) On average, the reform reduced the administrative costs of firms; but, the progress of reform had a substantial geographical variation. 2) The enforcement of deregulation reform was better in regions with a transparent government, low corruption, better access of the public to independent media sources, a powerful industrial lobby, and stronger fiscal autonomy. 3) Using the exogenous variation in regulation generated by the interaction of reform and its institutional determinants, we find a substantial positive effect of deregulation on net entry and small business employment and no effect on pollution and public health. The results support public choice theory of the nature of regulation and are inconsistent with the predictions of public interest theory.