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| Abstract |
This memorandum considers the direct and indirect effects of reducing the administrative burden on firms. Reducing the burden is expected among other things to boost investment, adding to the increase in production and labour productivity. For an individual country a unilateral reduction probably has different effects than a reduction that is part of a co-ordinated, European effort to scale down the administrative burden of government regulations.
To assess the indirect effects, within the economy of the European Union and between European economies, we employ the CPB’s general-equilibrium model WorldScan, which simultaneously takes account of the different product and factor markets in the world economy and which models many European economies in detail. The Netherlands is one of the very few countries, which currently has detailed information on the administrative burden of government regulations. Therefore, we assume that the key figures for the Netherlands also hold for the other member states of the European Union. This assumption implies that for the whole European Union an administrative burden exists of 340 billion euro in 2002. Better data for other member states are needed to arrive at a complete assessment of direct and indirect effects.
Conclusions
Based on Dutch data, reducing the administrative burden with 25% leads to a 1.7% increase in real GDP for the European Union. The long-term effect is higher than the initial impact, since the reduction induces extra capital accumulation and brings spillovers from extra R&D. The production growth is not fully translated into welfare gains. The gap between the two follows from a loss in terms-of-trade, but is generally small. For individual EU-25 member states the effects are broadly similar.
The simulations show that the gains from a co-ordinated reduction are somewhat larger than from a unilateral reduction. The main reason is not terms-of-trade effects but rather spillovers from extra R&D investment. The macro-economic results do not change when an alternative, uneven distribution of the administrative burden on sectors is assumed. With this alternative distribution agriculture and services see the largest gains in production.
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D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
K20 - Law and Economics - - Regulation and Business Law - - - General
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