The Role of Regulation on Entry: Evidence from the Italian Provinces

Abstract

This paper studies the effects of differences in local administrative burdens in Italy in the years 2005–2007 preceding a major reform that sped up firm registration procedures. Combining regulatory data from a survey on Italian provinces before the reform (costs and time to start a business) with industry-level entry rates of limited liability firms, I explore the effects of regulatory barriers on the average of the annual entry rates across industries with different natural propensities to enter the market. The estimates of the cross-sectional analysis show that lengthier and, to some extent, more costly procedures reduced entry in sectors with naturally high entry. A one-day delay in registration procedures reduces the entry rate in highly dynamic sectors by more than 1 percent. These results hold when I include measures of local financial development and of efficiency of bankruptcy procedures.