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Federal Regulation and Aggregate Economic Growth

  • John W. Dawson
  • John J. Seater

We introduce a new time series measure of the extent of federal regulation in the U.S. and use it to investigate the relationship between federal regulation and macroeconomic performance. We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce it–total factor productivity (TFP), physical capital, and labor. Regulation has caused substantial reductions in the growth rates of both output and TFP and has had effects on the trends in capital and labor that vary over time in both sign and magnitude. Regulation also affects deviations about the trends in output and its factors of production, and the effects differ across dependent variables. Regulation changes the way output is produced by changing the mix of inputs. Changes in regulation and marginal tax rates offer a straightforward explanation for the productivity slowdown of the 1970s. Qualitatively our results agree with those obtained from cross-section and panel measures of regulation using cross-country data, but quantitatively our estimated effects are somewhat smaller than those obtained heretofore.

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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c015_050.

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Length: 46 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:deg:conpap:c015_050
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