Microeconomic regulation

Carl Benedikt Frey, Giorgio Presidente, 10 March 2022

The EU implemented the General Data Protection Regulation in May 2018. This column examines its impact of it on firm performance. The findings show that companies exposed to the new regulation saw an 8% reduction in profits and a 2% decrease in sales. These adverse performance consequences were primarily borne by small and medium-sized enterprises. In contrast, there is no evidence that large technology companies, such as Facebook and Google, experienced any reductions in either sales or profits.

Cameron LaPoint, Shogo Sakabe, 08 November 2021

Growing spatial inequality has led policymakers to offer firms tax breaks to attract investment and jobs to economically peripheral regions. This column examines a place-based bonus depreciation scheme in Japan which granted high-tech manufacturers immediate cost deductions from their corporate income tax bill. The policy generated big gains in employment and investment in building construction and in machines at pre-existing production sites. This response was driven by firms which rely on costly but long-lived capital inputs like industrial machines. How firms react to spatially targeted tax incentives ultimately depends on their internal network and their composition of intermediate capital inputs. 

Sebastian Barnes, Robert Hillman, George Wharf, Duncan MacDonald, 16 July 2021

As the economy locked down in March 2020, businesses across the UK struggled to operate. And yet, fewer firms declared bankruptcy during the pandemic than in preceding years. This column introduces a model designed to examine the economic impact of Covid-19. It determines that government assistance rescued previously profitable firms that might not have survived lockdowns, but also propped up weaker firms that would have failed in normal times. The difficulties in effectively targeting aid justifies the expansive support distributed during the crisis.

Simeon Djankov, Eva (Yiwen) Zhang, 09 July 2021

The economic shock triggered by Covid-19 shut down thousands of businesses and cost millions of workers their jobs. The goal of government response to this shock was simple: keep the lights on for as long as possible. This column describes how while some advanced economies have moved ahead with changes in their bankruptcy law to make it easier for distressed companies to keep running, developing countries have not reformed their procedures. A possible solution is to devise policies that reduce the share of the informal economy and put more pressure on reforming formal institutions.

Rustam Jamilov, Hélène Rey, Ahmed Tahoun, 05 July 2021

Cyber risk poses serious threats for businesses around the world. This column develops a new text-based measure of cyber risk exposure by leveraging computational linguistics and quarterly earnings transcripts for 12,000+ firms from 85 countries over the past 20+ years. Cyber threats have tripled since 2013 and affected a lot more countries and industries. Cyber risks are priced into the stock market and are contagious. The authors conclude that cyber risk is a source of systemic risk for firms and markets.

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