Contrary to the standard economic advice, many regulations of financial intermediaries, as well as other regulations such as blue laws, fishing rules, zoning restrictions, or pollution controls, take the form of quantity controls rather than taxes. We argue that costs of enforcement are crucial to understanding these choices. When violations of quantity regulations are cheaper to discover than failures to pay taxes, the former can emerge as the optimal instrument for the government, even when it is less attractive in the absence of enforcement costs. This analysis is especially relevant to situations where private enforcement of regulations is crucial.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
8184.
Length: Date of creation: Mar 2001 Date of revision: Handle: RePEc:nbr:nberwo:8184
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Find related papers by JEL classification: L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
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