The jewel of Gran Canaria, the Maspalomas Dunes, are subject to at least 47 regulations created in Las Palmas, and vandalism continues. In 1975, Gran Canaria lacked specific tourism legislation and everything depended on the Las Palmas Tourist Board. Tourism on the island was governed by general state regulations and local initiatives without a consolidated legal framework. It was in that year that the Gran Canaria Tourist Board was created with the aim of promoting, regulating, and fostering tourism activities, marking the beginning of an institutionalization of the sector on the island. From three regulations based on common sense to the 416 affecting the industry, according to a report by the Bank of Spain.
This tThe work analyzed, in empirical terms, whether sectoral regulation and its complexity generate positive or negative impacts on economic activity.To our knowledge, the analysis of the economic impacts of regulation using sector-disaggregated databases has not yet been addressed, but it provides a statistic: 416 regulations in southern Gran Canaria. The analysis focuses on the case of Gran Canaria, based on a new database that classifies 206.777 regulations by sector and region for the period 1995-2020. A descriptive analysis of the database shows that regulation and its complexity have been increasing in recent decades, but that they are diverse at the sector and regional levels and appear to be sensitive to the economic cycle.
Preliminary evidence suggests that greater regulatory complexity has a dampening effect on the employment rate and a negative impact on value added. Specifically, each additional increase in the regulatory complexity index is associated with a 0,7% drop in the employment share at the sectoral level, all else being equal. The most intensely regulated industries in the Canary Islands experience lower employment growth.
Second, using disaggregated data (MCVL), exploiting information on employment according to company characteristics, the Bank of Spain report indicates that the negative impact of regulatory complexity is concentrated on smaller and younger firms. Ten percent of new regulations are associated with a relative 0,5 percent drop in the number of workers employed by firms with fewer than 10 employees. At the sector level, the most affected group is manufacturing. The magnitude of the effect is 50 percent greater than in the case of the services sector.
Analyzing the channels through which these effects are observed is part of the future research agenda, but it is worth mentioning that the costs of regulation may be proportionally more or less important or burdensome depending on the size of the firm. For example, it is conceivable that a small firm may not have its own legal department to advise it, whereas a large firm, whether it has in-house legal services or the resources to pay for external legal services, may be able to cope with any change in the regulatory environment with greater certainty. On the other hand, the greater sensitivity to regulatory uncertainty that appears to be observed in manufacturing sectors may depend on their greater reliance on capital investment, especially intangible investment. This is more difficult to regulate and protect (in terms of compliance) in a manner consistent with previous results in the literature.
