The Political Determinants of Regulation: Data over One Century from the Swiss Cantons

Simon Luechinger (University of Lucerne)
Mark Schelker (University of Fribourg)

Abstract: This project aims to analyze the political determinants of regulation. We have collected data for more than a century of Swiss cantonal regulation and study the impact of the staggered abolishment of the mandatory legislative referendum in Swiss cantons. We find that the mandatory legislative referendum reduces regulatory activity, measured as the number of statutes (or number of pages) that were newly enacted, amended or abolished. We use this finding as a first stage in an IV approach to analyze the impact of the change in regulatory activity on economic outcomes and the interaction with fiscal policy. We find that an increase in regulatory activity has a negative effect on per capital income and per capita government expenditures. The first result might be interpreted as evidence for the existence of economic costs due to a higher degree of regulatory activity which reduces legal certainty and increases transaction costs. The second result provides evidence in line with the interpretation that regulatory and fiscal policy are substitutes in terms of policy instruments.