The heterogenous effects of regulatory complexity: Evidence from more than 200k Spanish norms

Abstract We analyze the impact of regulatory complexity on economic activity and its heterogeneous impact on firms. We use a novel database that classifies more than 200,000 regulations adopted in Spain between 1995 and 2020. Exploiting this rich database, we are able to estimate the exposure to regulatory complexity of industries located in different Spanish sub-national regions. We find that an increase in regulatory complexity has an impact on economic activity, reducing employment. Entry of new firms in sectors-regions exposed to higher regulatory complexity is also lower. These effects are heterogeneous across firms, with negative effects concentrated in smaller and more recently established firms. This evidence emphasizes the importance of both the aggregate and distributional impact of regulatory complexity. JEL CODES : K2; R11; J00; E02.