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In Praise of (Some) Red Tape: A New Approach to Regulation

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Abstract

The costs of removing red tape include a lower chance of detecting recession-generating flaws in the financial system. What we call independent dimensions of regulation (IDRs) operate more or less independently to other groupings. If an IDR�s optimality is unknown, it may be risky to remove. Uncertainty thus implies that (some) red tape � i.e. a small amount of overregulation � is justified, in contrast to the Brainard (1967) principle that uncertainty dictates less policy activism. The long run GDP benefit of a 1% improvement in financial services productivity is 0.06% in our CGE model. These relatively modest gains reinforce our conclusion.

Suggested Citation

  • Gordon Menzies & Peter Dixon & Maureen Rimmer, 2016. "In Praise of (Some) Red Tape: A New Approach to Regulation," Working Paper Series 33, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ecowps:33
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    1. Robert W. Faff & Tom Smith, 2015. "A simple template for pitching research," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(2), pages 311-336, June.
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    3. Cihak, Martin & Demirguc-Kunt, Asli & Johnston, R. Barry, 2013. "Incentive audits : a new approach to financial regulation," Policy Research Working Paper Series 6308, The World Bank.
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    5. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, December.
    6. Douglas Elliott & Mr. Andre O Santos, 2012. "Assessing the Cost of Financial Regulation," IMF Working Papers 2012/233, International Monetary Fund.
    7. Janine M. Dixon & Peter B. Dixon & James A. Giesecke & Maureen T. Rimmer, 2014. "Quantifying “Dog Days”," Economic Papers, The Economic Society of Australia, vol. 33(3), pages 203-219, September.
    8. Jennifer A. Elliott & Aditya Narain & Ian Tower & José Vinãls & Pierluigi Bologna & Michael Hsu & Jonathan Fiechter, 2010. "The Making of Good Supervision; Learning to Say "No"," IMF Staff Position Notes 2010/08, International Monetary Fund.
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    Cited by:

    1. Kostas Mavromaras & James A. Giesecke & Peter B. Dixon & Maureen T. Rimmer, 2017. "The Economy-wide Impacts of a Rise in the Capital Adequacy Ratios of Australian Banks," The Economic Record, The Economic Society of Australia, vol. 93, pages 16-37, June.
    2. Robert W. Faff, 2019. "Adopting a Structured Abstract Design to More Effectively Catch Reader Attention: An Application of the Pitching Research® Framework," Capital Markets Review, Malaysian Finance Association, vol. 27(2), pages 1-13.

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    More about this item

    Keywords

    Banking; Regulation; Monitoring; Financial Crises; Independent dimension of regulation;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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