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Political decentralization and policy experimentation

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Author Info

  • Hongbin Cai

    (Guanghua School of Management, Peking University)

  • Daniel Treisman

    ()
    (Department of Political Science, University of California, Los Angeles)

Abstract

What determines the enforcement of deregulation reform of business activities? What are the outcomes of deregulation? We adress 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) The reform reduced administrative costs of firm, on average; but, the progress of reform had substantial geographical variation. 2) The enforcement of deregulation reform was better in regions with a transparent government, low corruption, strong fiscal incentives (i.e., reliance of local budgets on local taxes rather than fiscal transfers) and a powerful industrial lobby. 3) Using the exogenous variation in regulation generated by the interaction of reform and its institutional determinants, we find a substantial pozitive effect of deregulation on entry and small business employment and no effect on pollution and morbidity. The results support the “tollbooth” theory of the nature of regulation and are inconsistent with either the public interest theory or the regulatory capture theory.

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File URL: http://www.cas.hse.ru/Repec/pdf/WP13_2007_05.pdf
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Bibliographic Info

Paper provided by Laboratory for Macroeconomic Analysis in its series Working Papers with number WP13_2007_05.

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Length: 40 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:cas:wpaper:wp13_2007_05

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Keywords: decentralization; innovation; policy experiments; voting; information.;

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