The Causal Effect of Regulations on Economic Growth: Evidence from the US States

We exploit variation in stage age across US states to estimate the effect of regulatory accumulation on economic growth. Regulatory levels are measured using QuantGov’s State RegData. The identification strategy is based on institutional sclerosis, the hypothesis that stable societies become stagnant over time as interest groups seek to impose restrictions on the economy, slowing its capacity to adapt to changing conditions. We find that a higher level of regulation’s exogenous component significantly reduces GDP growth.