How does regulatory complexity affect business demography? Evidence from Spain

The volume and fragmentation of the regulatory framework matter for the study of business demography. They may imply that the market is divided, reducing the ability of companies to take advantage of economies of scale and may reduce firm size. This article has two objectives: it analyzes the results of a new database on regulation in Spain and explores the impacts of the complexity of the regulatory framework on business demography. The volume of new norms adopted in Spain has increased by four-fold since the end of the 70s, reaching 11,737 regulations in 2018. The results of our analysis indicate that the complexity of the regulatory framework, broken down at the local level, is negatively related to the total number of firms in Spain. The negative association is clearer in the case of limited liability companies (which are larger firms) than in individuals with business activity (which have a smaller size). The analysis in this article is relevant to the study of productivity in Spain.