This chapter examines how reducing administrative and regulatory burdens can boost business in regions, while limiting the negative effects of economic activity. It focuses on the role of simplifying rules with regional variation, such as land use, business registration and business licensing. It then highlights the role of digitalisation in easing regulatory compliance and explores how emerging regulatory practices, such as agile regulation, can ensure rules keep pace with technological progress. Finally, the chapter considers the broader benefits of regulatory streamlining and simplification, notably its contribution to reducing corruption risks and strengthening institutional quality.
Boosting Business in Regions
Easing Administrative Burdens and Financing Constraints
Abstract
Boosting by reducing administrative burden and corruption
Efficient regulation is a key component for an enabling business environment in regions. Efficient regulation achieves its goals without imposing unnecessary burdens on firms. To improve efficiency, governments can simplify existing regulations and streamline the compliance processes for the remaining ones. Regular reviews help maintain relevance, coherence, and efficiency for existing regulations. To preserve efficiency in the case of new rules, governments can consider a holistic approach, which considers interactions with existing regulations. Regulatory impact assessments support this process by providing a structured way to assess the consistency between new regulations and the broader regulatory framework. Governments can consider agile regulation with shorter evaluation cycles in fast-moving sectors to ensure regulation keeps pace with technological progress.
The impact of the same rules on businesses can vary across regions. For example, product and labour market regulation is usually set at higher levels of government, but effects may vary with local conditions. Stringent regulation that does not consider the specificities of different regions may limit firms' productivity growth, especially for regions that are catching up with more productive regions in the country. One reason is that rules are applied differently in different places. For instance, stringent employment protection legislation can reduce productivity growth especially in less productive regions of a country, as such places may be more vulnerable to rigid labour markets. Firms in more productive and higher-income regions, typically those with the largest cities in the country, tend to have better access to support services and better internal resources to facilitate compliance with regulation. In regions with a mid-sized or large city, fewer than 15% of businesses consider business licensing an obstacle to their activity. By contrast, in more rural regions without a city of at least 250 000 inhabitants, around 23% of firms consider licensing a severe obstacle to their activity, despite having to wait only half the time for their licence compared to firms in more urban regions. Regulations that are not place-aware can also lead to higher non-compliance rates in some regions, creating uncertainty for non-compliant firms and the workers in those firms and thereby reducing incentives to invest. Italian regions, for example, exhibit large differences in the share of workers working for wages below the minimum wage set at the national level, from fewer than 10% in northern regions to more than 20% in the less productive southern regions, where the national minimum wage would be more binding.
Speeding up the process of starting a business can encourage entrepreneurship. In the period 2018-21, the average share of startups among all firms was 25% higher in regions where it took less than a month to obtain an operating licence than in regions where it took more than two months. Delays in obtaining the necessary permits and licences increase costs and discourage potential entrepreneurs. Such delays are particularly relevant in regions where a licence takes more than two months, which represent a quarter of the 168 large (TL2) regions from 24 OECD member and candidate countries with available data. Similar results are obtained for long waiting times for construction permits.
Subnational governments play a key role in simplifying regulations. Simplifying regulations related to land-use, business registration or business licensing is often a responsibility of subnational governments, giving rise to wide differences within the same country. Across 31 countries with available data, obtaining a construction permit took 110 days longer in the slowest region of each country compared to the fastest region of that country. Reforming land use regulations, e.g. by removing geographic restrictions such as caps on the maximum number of stores, can allow new firms to enter those markets, encouraging more competition, innovation and productivity. Moving away from single-use zoning and allowing more mixed-use neighbourhoods can increase housing supply. More housing in productive regions, in turn, reduces housing costs and encourages more workers to move to those regions, increasing the supply of labour and supporting firm growth.
One-stop shops are part of an effective e-government system and can simplify compliance with existing regulations. Both national and subnational governments can set up informational one-stop shops, depending on the existing level of digital infrastructure and skills. One-stop shops bring together all important information regarding the main events in a business’s life (registration, licensing, taxation, bankruptcy, etc.) and make information easy to find and understand. More complex one-stop shops go one step further, by allowing businesses to complete procedures online, such as applying for permits and licences and registering a business or an employee. Such one-stop shops typically rely on digital infrastructure provided at the national level, for example, digital identification systems.
Once-only systems provide the digital infrastructure for reducing the compliance costs associated with rules and regulations. Once-only systems in which firms provide their information only once to one public authority avoid repetitive inputs, minimise mistakes and lower administrative burdens. Administering taxes, for example, can be a major burden for firms, especially in regions with less public or private support. In 25% of the 227 regions from 31 countries with available data, more than 1 in 3 firms found tax administration a severe obstacle to daily operations, with most of those regions lacking an urban centre or a large city. Applying the once-only-principle, e.g. by developing e‑government systems which draw information from a variety of databases (employment register, business register, e-invoicing systems, etc.) and automatically populate tax declarations, promises significant potential to boost businesses in these regions.
Simplifying regulation and compliance processes has broader benefits for regions, encouraging institutional integrity and reducing corruption. In half of the 229 large (TL2) regions with available data, at least 1 in 10 businesses find corruption a severe obstacle to their current operations. Corruption increases business costs and worsens the business environment by increasing uncertainty, reducing trust in institutions and lowering administrative capacity. Complex regulations and discretion in interpreting rules can make it easier for corruption to take hold. Simplification and streamlining remove some opportunities for corruption, as do digital solutions that allow for greater transparency and monitoring of decision processes. Combatting corruption pays off for regions, increasing incomes, employment and innovation. Estimates suggest that policies which would reduce the share of firms that consider corruption a severe obstacle by 10% could raise regional GDP per capita by 0.6%, reflecting a combined effect of lower uncertainty and reduced direct costs such as bribes and time spent on informal negotiations. Over the longer term, curbing corruption strengthens the overall business environment by fostering trust and reducing resistance to regulatory simplification.
To drive economic growth in regions, firms require access to capital and labour and an enabling business environment that allows them to reach their potential (OECD, 2024[1]). At the regional level, the business environment is set by rules, regulations and institutions put in place by both national and regional governments.
This chapter focuses on the quality of institutions in two key areas within the remit of the public sector, which shape nearly every aspect of the business environment in a region. The first concerns the ”rules of the game”, namely how regulation affects firms, how to streamline regulation and ensure compliance costs are minimised, and how to ensure regulations stay fit for purpose in the long run while ensuring public interests are protected. The main types of regulation covered are those regarding business licensing, business registration and land use, which are often defined or implemented by subnational governments and can differ widely across regions within the same country.
The second aspect concerns how the government operates and whether public servants act with integrity and in the public interest. To that end, it focuses on corruption, i.e. “the misuse of public office for private gain” (Treisman, 2000[2]), as a sign of institutional dysfunction with far-reaching negative effects on economic activity. Corruption influences firms’ returns on their investments, their incentives to comply with rules and regulations and the overall uncertainty of the business environment at both the regional and national levels.
Throughout the chapter, the analysis focuses on large (TL2) regions. These typically correspond to the first level of subnational government, such as Länder in Germany or administrative regions in France.1 The main indicators of regional institutional quality are the share of firms in a region that identified an aspect of the business environment, such as licensing, land use, or corruption, as a severe obstacle, i.e. the share of firms that responded that the aspect was a “major” or “very severe” obstacle to their activity.2
Regulation is crucial in harnessing the full potential of economic activity while mitigating its negative consequences. At the same time, regulation also creates compliance costs for firms, which can divert resources from innovation and growth. In half of the 229 large (TL2) regions with available data, over 10% of firms found business licensing a severe obstacle to their current operations. Regulation can require firms to spend time and resources reporting and obtaining approvals, which reduces the resources available for more productive pursuits. Easing such administrative burdens can unlock economic benefits. In 2011, Canadian firms were expected to fill out up to three forms per month for various levels of government, with total compliance costs estimated at USD 3 500 per year for the representative firm, or 0.3% of business sector revenues.3 Decreasing this cost by 1% as a share of total operating expenses compared to 2011 was associated with an increase in labour productivity of 0.1% between 2011 and 2016 (Government of Canada, 2013[3]; Tu, 2020[4]).4
The OECD Recommendation of the Council on Regulatory Policy and Governance recommends that governments “develop programmes to reduce the administrative and compliance costs of regulation without compromising legitimate regulatory objectives” (OECD, 2012[5]). In practice, this means that regulatory complexity should be introduced only if it provides clear benefits, such as better planning or targeting incentives. For example, tax filing requirements should be as simple as possible while still allowing for targeting tax incentives, redistribution, or audits. Similarly, complex requirements for building permits should be balanced against the government’s ability to plan land use efficiently using this information. The resources that firms save on administrative burdens can, in turn, be used for more productive uses, such as expanding production or innovating.
To ease administrative and regulatory burdens, public authorities can simplify existing regulations and streamline compliance with the remaining rules. Simplification does not mean wholesale deregulation but rather cutting redundant requirements and combining multiple detailed rules into simple, easy-to-understand principles. Streamlining compliance means making the process as smooth and easy as possible. This includes providing information about the rules in clear language in one place, making reporting requirements easy by providing pre-filled or clear forms, such as checklists, and digitalising and automating the compliance process wherever possible. Digitalisation is crucial for streamlining compliance, as it avoids needless trips to government offices, allows firms to follow processes in their own time (provided they meet deadlines) and cuts processing times. Such efforts improve regulatory efficiency while maintaining the integrity of policy objectives.
Different levels of government have different roles to play in easing administrative and regulatory burdens
When coordination and harmonisation are essential, rules are usually set at the higher levels of government (e.g. the national level). For instance, the laws that provide a country's legal framework, such as constitutions, property rights and rules regarding taxation, are typically set at higher levels of government.5 Conversely, rules that require detailed local information about the needs and limitations of different places are often set at the subnational level. Lower levels of government can have more information about the exact needs and constraints faced by local areas, which is why many licensing requirements and land-use regulations are set at the subnational level. This advantage needs to be balanced against higher coordination costs or differences in capacity. Subnational governments tend to have different levels of capacity and resources, which can result in cumbersome decision-making processes and long waiting times (Charbit and Michalun, 2009[6]).
Even when rules are the same for all regions, they can have different effects on firms in different places. For instance, simplifying employment legislation, which is typically set at the national level, can help less productive regions relatively more.6 In a sample of 265 TL2 regions from 27 OECD countries between 1997 and 2007, less stringent employment protection legislation increased productivity growth more in regions further from the most productive regions. Making regulation more flexible by one point on a scale from 1 to 6 was associated with an increase in productivity growth of one percentage point for a region that was half as productive as the most productive region in the country. However, for a region that was a fifth as productive as the frontier region, the growth effect was four times higher, reaching 4.2 percentage points (D’Costa, Garcilazo and Oliveira Martins, 2013[7]; D’Costa, Garcilazo and Oliveira Martins, 2019[8]).
Several levels of government may be involved in regulatory areas that are more complex. Land regulation is an example of such multi-layered regulation, involving a mix of national, regional and local regulations. National governments typically set the legal framework, giving the lower levels of government specific roles. They may also develop national strategies and laws setting rules for environmental protection. Local and regional governments, in turn, typically have power over detailed land planning decisions, such as what and where to build (Box 1.1). In practice, mandates and roles overlap, which can lead to inefficiencies and fragmentation. A quarter of the 40 OECD member and candidate countries with available data have a high degree of fragmentation and overlap in their land use regulation mandates (Table 1.1). In some cases, such overlaps result from a conscious choice, for instance, when deciding strategically important areas, such as placing important factories or industries that require coordination between national, regional and local planners. However, when it is the result of path dependence or inefficient institutional arrangements, overlaps can lead to fragmentation and inefficient decision-making (OECD, 2021[9]).
Land-use governance indicator, ranging from 0 (least fragmented and overlapping) to 30 (most fragmented and overlapping)
Source: The governance of land-use indicator ranges from 0 to 30 (least to most overlap and fragmentation in decision making) according to answers to the 2019 OECD Questionnaire on Affordable and Social Housing (OECD, 2021[9]).
Land regulation provides an example of a typical division of tasks between national and subnational governments. Subnational authorities, which are most likely to have the kind of detailed information necessary for efficient planning, e.g. the uses of land and the needs of the communities, tend to focus on land use planning – deciding the use of specific locations. Their plans tend to reflect this detailed knowledge – in 2016, 67% of local plans in 32 OECD countries were detailed, compared to only 15% of national plans (OECD, 2017[10]). By contrast, national and regional governments focus mostly on general outlines, including strategic guidelines and broad principles.
Most countries defer to the local level in questions of detailed planning. Although the framework legislation for land use planning varies according to the type of government, i.e. between unitary and federal countries, in practice, this makes little difference. In all unitary governments except Italy, national governments adopt the framework legislation for land use planning, but they do not usually adopt one-size-fits-all across all territories. In federal countries, this task typically falls to the states, but the frameworks tend to be similar across states. (OECD, 2017[10]).
Land use planners, which are typically subnational authorities, must balance the interests of multiple stakeholders, including resident, commercial and industrial actors, and consider future demographic scenarios. For instance, cities are dense and prone to congestion, so efficient use of urban land requires coordination and preparedness, such as building offices close to public transport nodes, making sure infrastructure moves in tandem with demographic patterns, keeping polluting industries away from living areas, or limiting the nighttime noise in living areas. Denser places also need significant transportation infrastructure that considers current and future needs. To achieve these goals, they rely on tools such as the planning process, environmental and building code regulations, licences and permits, and, in some countries, taxes (OECD, 2017[11]). Especially in metropolitan areas, which might consist of several municipalities, municipalities may cooperate by forming broader governance bodies to manage resources together or advise on topics of common interest. In 2013, across the 263 metropolitan areas with available data, which represented more than 90% of the total metropolitan areas in the OECD, two-thirds had a governance body for the metropolitan area. Of these, two-thirds covered at least three topics: regional development, transportation and spatial planning (Ahrend, Gamper and Schumann, 2014[12]).
Governments can boost business in regions by adopting a two-pronged simplification strategy: removing barriers to entry for new firms and obstacles to growth for existing firms. Removing barriers to entry for new firms can take the form of simplifying licensing and registration rules, thus allowing new firms to compete with incumbent firms. For incumbent firms, governments can remove barriers to growth by adopting more flexible land use regulations. Relaxing zoning laws in high-productivity regions can enable more housing development and attract new workers, thereby expanding the labour pool and enabling local firms to scale up more easily.
Business registration and licensing
Setting up a business typically consists of one or two steps. The first step is registering the business, a process which can involve local, regional, or national authorities (see Box 1.2 for the documents required in France). Registration provides multiple benefits, including legal recognition and protections, limited liability status, and the ability to enter formal contracts enforceable by the legal system. A second step may be required, as some countries require a business licence to start a commercial activity. Typically, such licences are under the remit of subnational governments. For example, when opening a restaurant in Spain, a registered company needs to obtain an opening licence, which attests to the firm’s compliance with the minimum legal requirements in areas such as health and sanitation regulations.7 Some industries, e.g. public broadcasting in most countries, may require licences awarded at the national level.8
Establishing a Société à Responsabilité Limitée (SARL) or limited liability company in France requires several administrative steps. These include a company creation declaration, a proof of right of domicile (justificatif de siège social), a certificate of publication following the incorporation of the company, criminal record disclosure, proof of identification, a document detailing the articles of association (company purpose and name, shareholder information etc.), proof of qualifications for regulated activities, and possibly spousal information. The entrepreneur and company are thereby registered with the national company directory (Registre national des entreprises) and the trade registry (Registre du commerce et des societés). From January 2023, all applications must be submitted online to the Companies Formalities Centre (Centre de formalités des entreprises) (Entreprendre Service Public, n.d.[13]).
Starting a business is a resource-intensive and time-consuming activity. In half of the 214 regions with available data, it took longer than a month to obtain a business licence during the 2018-21 period (Box 1.3). Complex registration processes could particularly discourage disadvantaged groups such as women, migrants, and persons with disabilities, who are less likely to start a business in the first place (OECD/European Commission, 2023[14]).
Because operating licences are typically under the remit of subnational governments, the effort and time it takes to obtain such a licence can vary significantly across regions of the same country. In half of the 214 regions with available data, obtaining an operating licence took more than a month during the 2018‑21 period (Figure 1.1). Across the 31 countries with available data, the average difference between the region with the longest time to award an operating licence and the one with the shortest time was almost three months (90 days). The median difference was more than a month (39 days). Germany had the largest difference between the fastest and the slowest region, almost 450 days. Large regional differences are not only observable in federal countries – unitary countries such as France (390 days) and Denmark (310 days) can also exhibit large differences, pointing towards differences in administrative capacity and regulations within the same country.
Average calendar days to obtain an operating licence across large (TL2) regions
Note: OECD calculations based on World Bank Enterprise Survey data for 214 TL2 regions from AUT, BEL, BGR, CHL (2010), COL (2017), CRI (2010), CZE (2009), DEU, DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, IRL, ISR (2013), ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR. Figures refer to the period 2018-21, unless stated otherwise in parentheses.
Source: OECD calculations based on World Bank Enterprise Surveys.
Simplifying the processes and rules required for obtaining a business licence could boost firm creation and encourage competition from new entrants. In around 25% of the regions with available data, business licensing procedures took more than two months and firm creation rates were 25% lower than in regions where obtaining a licence takes less than a month (Figure 1.2).9 Experience from a reform in Mexico illustrates the potential positive effects of regulatory streamlining. In 2002, the federal government of Mexico created a “System of Fast Opening of Firms”, known by its Spanish acronym SARE (Sistema de Apertura Rápida de Empresas), simplifying registration and licensing to encourage entrepreneurs to either start their own business or formalise their existing one. The result was an increase in business creation by 5%, leading to 40 000 new jobs according to one estimate.10 Simplifying the process of starting a company also encourages competition, which can reduce prices and boost innovation. Evidence from European limited-liability firms between 1990 and 1999 suggests regulatory barriers accounted for around 10% of the difference in entry rates between high- and low-entry industries in the same country. Since entry costs are often fixed, they can prove too high for small firms, so only larger firms enter the market. This diminishes the effects of competition, keeping out possible young, small and competitive firms while allowing incumbents to grow slowly with limited competition (Klapper, Laeven and Rajan, 2006[15]). In the case of the Mexican SARE reform, new entrants boosted competition, resulting in a price decrease of 1% in the industries targeted, which mainly were in retail and other services (Bruhn, 2011[16]; Kaplan, Piedra and Seira, 2011[17]).
Time to obtain an operating licence (calendar days, horizontal axis) and rate of firm births (%, vertical axis)
Note: 168 TL2 regions from AUT, BEL, BGR, CZE (2009), DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, ITA, LTU, LUX, LVA, MEX (2010), NLD, PLN, PRT, ROU, SVK, SVN, SWE.
Source: Firm birth rates come from the OECD Regional Database and refer to the year 2019 or the latest available year before that. The number of days to obtain an operating licence comes from the World Bank Enterprise Survey.
To encourage entrepreneurs to start businesses, governments need to both simplify the rules and streamline the processes associated with company creation. The Mexican SARE reform reduced the average number of days to register a business from 30 to 2, the number of procedures required from 8 to 2, and the number of visits to the municipal office from 4 to 1. A similar reform in Chicago in the United States involved a combination of measures. It simplified requirements, removed some licences, consolidated similar ones, and clarified and presented the remaining ones in a simple-to-use format. The reform also streamlined the process of opening a business, which, before the reform, required multiple licences and checks from different authorities, from zoning and construction permits to licences for late hours and liquor. Chicago reduced the number of required licences by 60% and the time for zoning reviews from 1 to 2 weeks to 2 days, with estimated savings of USD 2 million in yearly licence fees for over 10 000 small businesses (City of Chicago Office of the Mayor, 2012[18]; Ash Center for Democratic Governance and Innovation, 2015[19]).11 A similar reform in Arizona, which combined improvements in regulation and the application process, sped up processing times by 60% and decreased the time to conduct a planning review to just 4 days (Arizona State Government, 2015[20]).
It can be helpful to restrict licences to specific cases to safeguard public interest while simplifying requirements and allowing businesses outside these categories to be established through simplified procedures. Common businesses with licensing requirements include those with health, safety or environmental concerns, and businesses that could strain existing infrastructure (e.g., a large mall that would bring an influx of customers to a residential area with limited parking or transport solutions). In Mexico, the SARE reform focused on small firms in a pre-defined list of almost 700 industries deemed not to pose environmental or health-related risks.12 In Chicago, the local government undertook a detailed review of the 112 licences in place and suggested a new three-tiered structure that limited heavy regulation to a minority of businesses (Ash Center for Democratic Governance and Innovation, 2015[19]).
Simplifying licensing can particularly benefit firms in more rural regions
Although firms outside metropolitan regions are typically subject to less complex licensing regulations, they tend to have more difficulties with compliance. It takes twice as long to obtain a business licence in regions with big cities as opposed to regions with no urban centres or small cities (69 days compared to 35 days). Still, firms in those regions are less likely to find business licensing an obstacle. The share of firms that find business licensing a severe obstacle is lower in big cities, standing at 15% compared to 22% in regions with only small cities or no urban centres (Figure 1.3).13 Firms in less urban regions tend to be smaller – they are half the size of the average firm in a big city – which limits their ability to comply with complex regulations. Smaller firms have fewer people who can handle the compliance and fewer resources to hire advisory services. The density and size of large cities facilitate the spread of information and learning among potential entrepreneurs and managers (Duranton and Puga, 2004[21]). The larger market in those cities also allows firms to offer (cheaper) advanced business services and advisory services that can help firms and potential entrepreneurs with compliance, so residents of those places might find it easier to externalise the application process (Duranton and Puga, 2005[22]). Lastly, the capacity to provide support and simplify regulatory compliance is greater in larger cities. Thus, simplifying regulation could disproportionately decrease compliance costs for small firms in less urban regions compared to larger firms in big cities.
Average time to obtain business licence across regions (calendar days, left axis) and share of firms that find business licensing a severe obstacle (%, right axis)
Note: OECD calculations based on World Bank Enterprise Survey data for 223 TL2 regions. Number of regions in each category is given in parentheses on the horizontal axis. Countries covered: AUT, BEL, BGR, CHL (2010), COL (2017), CZE (2009), DEU, DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, IRL, ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR. Figures refer to the period 2018-21, unless stated otherwise in parentheses. Regions with large cities: TL2 regions that include at least one TL3 metropolitan region, which is classified as a large metropolitan region, i.e. more than the population lives in a Functional Urban Area (FUA) of 1.5 million inhabitants. Regions with medium cities: TL2 regions which include at least one TL3 region which classifies either as a metropolitan region (more than half the population lives in a FUA of more than 250 000 inhabitants but fewer than 1.5 million) or as a non-metropolitan region with access to a metropolitan area (at least half of the population can reach a FUA of at least 250 000 inhabitants within a 60-minute car ride). The last category is TL2 regions which include only non-metropolitan regions, either with access to a small or medium city or remote.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]) and the OECD Regional Database (OECD, n.d.[24]).
The role of different levels of government in simplifying the process of starting a business
Simplifying the process of starting a business may require a combination of reforms at both the national and subnational levels. Corporate law usually governs business legislation, which means changes in business registration rules are made at the national level (in unitary countries) or the federal or state level in federal countries. For instance, Bulgaria, a unitary country, chose a nationwide legal reform in 2008, moving away from a business registration system involving regional courts to a digital nationwide Business Registry managed by the Ministry of Justice. The move decreased the cost of starting a business by a factor of four while freeing up the local courts (Box 1.4).
In January 2008, Bulgaria cut regulatory burdens on business registrations with a legislative reform that changed the rules for the incorporation of firms. Before the reform, it took up to two months to register a business, and the application procedure was subject to regional judicial systems, which were overburdened and slow. Thereon, new firms were required to register in the digital Business Registry. This decreased the length of the process to around one day, as passing through the judicial system was no longer necessary for a simple registration. The average time needed to open a business in Sofia decreased from 39 days in 2007, before the reform, to 25 days by the time the reform had been fully implemented in 2013. The effects on the cost of starting a business were even higher, decreasing from 8% of income per capita in 2007 to 2% in 2012 (World Bank, 2024[23]). In 2009, while the reform was still in its implementation phase, 17% of firms in the country found courts to be a severe obstacle to their activity. By 2013, when the reform had been implemented, the share had dropped to 9.5% and remained below 2009 levels even in 2019, when it had increased slightly to 11.5% (World Bank, n.d.[25]).
Data was transferred to a centralised system from regional courts over three years. On completion in 2011, the Business Registry saw around 20-30% of firms applying to change their data electronically (a procedure referred to as "company change of circumstances”). By 2022, that figure had risen to 80%.
The introduction of the Business Registry lowered the administrative burden on applicants. It functions as a one-stop shop and consolidates the needs of starting an enterprise to a single access point. Businesses are issued a unique identification number upon registration, improving electronic tracking and processing throughout a firm’s lifecycle. Currently, the Business Registry provides other services to ease access to information regarding taxation, social security, commerce, and statistics. The Registry Agency administers it and is part of the Ministry of Justice.
In the period after the reform, there was a reduction in the share of firms that found business licensing a severe obstacle to their activity, from 10.5% of firms during the implementation of the reform to 8% in 2013, two years after the completion of the reform.
Source: OECD policy workshop, “What helps firms grow in regions?”, 27th June 2022.
Even with changes at higher levels of government, the implementation of business registration reforms is often at the subnational level. For instance, the 2002 SARE reform in Mexico was designed and coordinated by the federal government but implemented by subnational authorities, which, in practice, oversaw many of the procedures and compliance checks for starting a business. Municipalities were in charge of providing the necessary resources (infrastructure, personnel, etc.), publicising and managing the programme, while a federal body provided the necessary training and supervision.14
Similarly, construction permits reforms often need a combination of reforms at different levels of government. For instance, Czechia modified its building legislation to consolidate the rules and streamline the process of obtaining construction permits, which entered into force in 2024. The new legislation defines several types of construction, streamlines previously separate processes and requires building authorities to provide a decision within two months, depending on the type of project. 15 The reform also aimed to digitalise the entire permitting process, and created a digital ecosystem for obtaining and keeping track of building permit documentation (Dentons, 2024[26]).16 The new system maintains an important role for subnational authorities, which are responsible for issuing permits and deciding on land use and building regulations. For instance, as of 2024, the largest cities in Czechia, such as Prague and Brno, had modified their building rules to be in line with the new national regulation (Dentons, 2024[27]).
By contrast, regulations regarding business licensing are usually set and implemented at the subnational level (with some notable exceptions, such as broadcasting licences), which can provide subnational governments with more leeway. Decisions on business licensing require detailed information regarding land uses, which is why it is typically the responsibility of subnational authorities, either local or regional. Subnational authorities can consolidate multiple licences, removing unnecessary regulation and simplifying the application process, the way Chicago did in its licensing reform (City of Chicago Office of the Mayor, 2012[18]; Ash Center for Democratic Governance and Innovation, 2015[19]).
Flexible land use regulation can boost businesses in cities
Regulation and planning are essential to ensure that land is used efficiently, balancing the positive economic effects of agglomeration and density while limiting the associated negative externalities. For instance, ensuring efficient agglomeration and urban development may require building offices close to public transport nodes, ensuring infrastructure is developed in line with demographic patterns, keeping polluting industries away from living areas, or limiting the nighttime noise in living areas. In some cases, avoiding agglomeration costs may require limiting economic activity in dense places or incentivising firms to move to less congested areas.17 Since land and buildings represent more than 80% of the capital stock, even small changes in such regulations can have significant economic effects (OECD, 2017[11]; OECD, 2018[28]; Castells‐Quintana, Royuela and Veneri, 2020[29]; OECD, 2010[30]).
Removing geographic restrictions can increase competition
At the same time, excessively strict land use regulation may hurt discourage competition. One such example are geographic restrictions limiting the density of certain businesses in an area. In Ireland, geographic restrictions on pharmacies limited the number of new pharmacies to only 48 across the entire country between 1996 and 2001.18 In the United Kingdom, a policy that aimed to push new developments in the retail sector towards more central urban areas cost a third of the output for the representative store, according to one estimate.19 Increasing the refusal rate of major retail projects by 8% – a measure of the stringency imposed by a local authority on supermarkets – led to an 11% reduction in the size of the store and lowered by a quarter the chance of a store being opened (Cheshire, Hilber and Kaplanis, 2015[31]).
By limiting the entry of new firms, strict geographic restrictions protect incumbent firms that might even consider stringent regulation a form of “protection”. More restrictive land-use regulations are estimated to increase operating costs by 8% and entry costs by 6% for six midscale hotel chains competing in the 10 most restrictive counties compared to the 10 least restrictive counties across a sample of 35 counties in Texas, in the United States. These costs deterred new entrants, resulting in a lower number of hotels operating in the counties and a 4% higher price per room for guests, as there was less competition. Firms were thus willing to shoulder the costs associated with a highly regulated market – approval delays, density restrictions, exactions, zoning approval, and supply restrictions – because they anticipated less competition and higher profit margins once approval was granted (Suzuki, 2013[32]).
Encouraging competition by removing barriers to entry can lead to more productive regions. For example, in Italy in 2000, decreasing the stringency of approvals of large retail developments from the level of the 25% most stringent region to the 25% least stringent was associated with an overall increase in the productivity of the sector by 3%.20 The higher productivity came from an increase in competition due to new entries, which lowered the margins of the largest stores by 8% (Schivardi and Viviano, 2010[33]).
Competition regulation needs to exist and also be properly enforced to encourage competition and increase productivity. In Peru, legislation strengthening the competition authority’s mandate to enforce competition at the local level led to faster productivity growth for firms in sectors and municipalities targeted by the reform. Productivity in firms in municipalities that eliminated regulatory barriers to entry was 10% higher in subsequent years than similar firms from the same state but located in municipalities with no decreases in regulatory barriers (Schiffbauer, Sampi and Coronado, 2025[34]).
Flexible zoning can encourage growth in productive areas by making housing more affordable
In addition to limiting the entry of new firms in specific regions, strict land use regulations may also act as a barrier to growth by increasing the price of housing in productive areas and limiting workers’ ability to move there. On average, regions where firms find access to land a severe obstacle to their current operations tend to also have more firms that consider finding qualified workers a severe obstacle (Figure 1.4).21 Land use restrictions which limit how much housing can be built in a certain area impose an implicit tax on land, translating to a higher land price and increasing housing costs. Estimates for the United Kingdom show that changing the regulation of the South East, the most regulated region in England, to match that of the North East would have decreased housing prices by a quarter in 2008 (Hilber and Vermeulen, 2015[35]). The foregone opportunities in raising productivity can be significant and lead to lower aggregate income. In the United States, housing supply constraints in cities with strong productivity growth, such as New York and San Francisco, are estimated to have held back GDP by up to 3.7% in 2009 (Hsieh and Moretti, 2019[36]).
Note: OECD calculations based on World Bank Enterprise Survey data for 227 TL2 regions from AUT, BEL, BGR, CHL (2010), COL (2017), CRI (2010), CZE (2009), DEU, DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, IRL, ISR (2013), ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR. Figures refer to the period 2018-21, unless stated otherwise in parentheses.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]).
One way to relax housing supply constraints is to use flexible zoning rules and avoid single-use zoning22 except for clear purposes, such as hazardous industrial areas. Zoning rules that focus on preventing specific nuisances, such as pollution or noise, without explicitly banning mixed‑use developments or multi‑family homes, can allow urban areas to adapt the housing supply to demographic changes and changing housing demand.23 In Japan, the flexible urban zoning system is credited for the high rate of construction of new dwellings. In 2018, Japan ranked 6th among 32 OECD countries in the share of dwellings completed as a share of the total housing stock. Japan’s zoning system is based on 12 standardised mixed-use zones, ranging from low-rise residential zones to industrial zones. The underlying principle is that developments are allowed, as long as they cause a level of nuisance below the admissible level. For instance, residential buildings are permitted in commercial zones, but there are numerous restrictions on commercial activities in residential zones. There are no specific restrictions on multi-family homes, but there are rules on maximum floor-to-area ratios and residential and commercial buildings are restricted in industrial zones with potentially dangerous activities (OECD, 2021[9]).
Wherever possible, governments should aim to set clear rules and put in place efficient compliance processes. Clear rules and streamlined procedures allow firms to meet compliance requirements quickly and efficiently, enabling resources to move towards more productive activities. If rules are clear, firms need fewer explanations from public authorities, which enables public servants to spend time on other activities, such as further accelerating administrative processes.
Where subnational governments do not have the power to set standards or simplify regulations themselves, they can still decrease compliance costs by either reorganising the compliance process to ease burdens on businesses or explaining requirements more clearly. Even minor adjustments to the compliance process can significantly improve efficiency. Before Chicago introduced targeted reforms to its restaurant licensing procedures, complex, hard-to-understand regulatory requirements regarding business licensing and food and safety regulations meant that only 42% of new establishments passed their first health inspection. In response, the city introduced a suite of user-centred tools designed to improve regulatory clarity and support compliance: a tailored questionnaire, a triage mechanism to identify applicable requirements by restaurant type, and a compliance checklist. These measures resulted in a marked improvement in first-time inspection outcomes, with the pass rate increasing to 72%, demonstrating the effectiveness of clear regulatory guidance in achieving compliance (Ash Center for Democratic Governance and Innovation, 2015[19]). Regulatory guidance tools can be developed by subnational governments that lack control over the rules or the compliance process, as a means of providing compliance support to firms in a region. Checklists and plain-language compliance guides can save firms the effort of having to translate the official rules to actionable steps. This can be a powerful time-saving device, as the investment in simplifying and explaining is done only once (typically by public authorities) and the effects can be enjoyed by all firms. For instance, the Veneto region in Italy, which has a strong agricultural sector with many SMEs, has developed training and manuals for small agricultural producers, explaining the rules and the types of health and hygiene good practices to which they should adhere (Piccole Produzioni Locali Veneto, n.d.[37]).
Digitalisation is a crucial tool in streamlining compliance and can save time and resources by enabling the application of the “only-once” principle in public administration. Information is provided only once, then stored safely on government servers and shared automatically across public bodies. Digitalising government services according to the once-only principle gradually between 2012 and 2015 would have brought benefits of at least EUR 6.5 billion by 2017 to countries in the European Union, according to estimates by the European Commission (2014[38]). Once-only systems minimise repetitive inputs, lowering administrative burdens and avoiding mistakes. They also save time, as firms can comply with regulations using online tools, which avoids time-consuming in-person visits to various government offices.
Another advantage of digitalisation is that it can enable the automation of some government services. In straightforward cases with clear decision rules, such as simple registrations, licences or attestations, automation could cover close to 100% of the process. In more complex cases, such as building permits, automation could cover only specific steps, still saving time and resources. For instance, integrating Building Information Models (software that can render design plans and site maps) and geospatial data (municipal or city plans, digital models, and topographical maps) into the building code review could allow municipal authorities to evaluate whether planned construction projects respect building rules in an area, such as maximum height restrictions (Olsson et al., 2018[39]). In 2022, a pilot project in Vienna, the capital of Austria, planned to digitalise the entire process of building permits, automating steps in the review process, and expected a 50% reduction in waiting times for such permits.24 Digital systems such as geographic information systems (GIS) and modern land-surveying technologies such as drones could further make urban planning more efficient and adaptable, for instance, by speeding up ground surveys and simplifying decision-making for planning authorities (de Mello and Ter-Minassian, 2020[40]).
Encourage business creation through one-stop shops
Digital one-stop shops provide a convenient, efficient, and user-friendly way to provide information to firms wishing to comply with government regulations. As of 2023, at least 29 out of 38 OECD countries had established digital one-stop shops aimed specifically at businesses, and all 38 countries provided information about regulation and compliance processes relevant to firms (OECD, forthcoming[41]). By consolidating all relevant details on procedures – such as starting, expanding, or closing a business and obtaining permits or licences – one-stop shops reduce search costs, particularly for small businesses and inexperienced entrepreneurs with limited resources. This is especially valuable for navigating subnational rules and regulations, which can vary significantly in a small area and are not always known or understood by the public. One example of such a national one‑stop shop that eases access to information is BizPal, which brings together rules across all levels of the Canadian government and explains them in an accessible manner (Box 1.5). Some one-stop shops also provide two-way communication, providing secure messaging services between governments and firms.
Introduced in 2005 as a pilot project coordinated by the Canadian federal government, BizPal is a digital one-stop shop that helps businesses identify and understand municipal, provincial, territorial, and federal permitting requirements.
By 2020, its database held 15 000 permits recorded from all levels of government, including more than 1000 municipalities and four First Nation communities, and covered 80% of Canada’s population (OECD, 2020[42]). The service provides information on areas such as fishing and international trade at the federal level, information on gambling and real estate at the provincial/territorial level, and zoning and road use at the municipal level.
BizPal is an initiative coordinated by the Department of Innovation, Science and Economic Development in the Canadian Government, and is a collaboration among federal, provincial, territorial and municipal governments, as well as First Nations. As of 2025, all territorial and provincial governments, as well as 17 federal agencies and ministries, are involved in BizPal. For more information, see www.bizpal.ca.
One-stop shops can encourage entrepreneurship, leading to the creation of new firms and new jobs. A 2005 reform in Portugal is credited with creating 4 500 new firms and 17 500 new jobs in the first two years. The reform, Empresa na Hora (On the Spot Firm), cut the number of procedures to start a company from 11 to 7 and implemented one-stop shops in some counties. This resulted in a significant drop in the time taken to open a business, from between 57 and 78 business days to one day or even one hour for simple incorporation. The cost of incorporation also dropped sharply, from 2000 euros (15% of per capita gross national income) to less than 400 euros.25 In the first two years, firm creation increased by almost a fifth in counties that introduced a one-stop-shop (Branstetter et al., 2013[43]). The new firms were more likely to be small, owned by entrepreneurs with low levels of education, and activated mostly in low value‑added sectors (agriculture, construction, and retail).
Reforms to introduce (digital) one-stop shops are usually a part of broader simplification initiatives. Digital one-stop shops pool together multiple steps and procedures under one digital “roof”, avoiding the need to navigate multiple government bodies and attend in-person meetings. Such efficiency gains explain why at least 26 of the 29 one-stop shops provided the possibility of transactional services such as filling in forms using some form of electronic ID (eID) system (OECD, forthcoming[41]). Clear checklists with the steps and deadlines needed to complete a procedure increase the chances of completing the procedure. Establishing a one-stop shop can, in itself, reveal additional opportunities for streamlining. The digitalisation process usually involves mapping out each step and stakeholder in the workflow, which helps to uncover redundant procedures, bottlenecks, and other inefficiencies. As a result, reforms often combine digitalisation with rule simplification and streamlined compliance processes.
Even when one-stop shops already exist, further improvements can bring economic benefits. A 2010 reform in Italy increased the rate of business creation and one-year survival rates by 0.2 percentage points. The reform decreased the time to start a business from 10 to 6 days and involved improving an existing one-stop shop for business registration and licensing and fully digitalising the firm registration process, including access to information, filing, communication with public bodies and firms and fee payments. It also streamlined the application process, fast-tracking clear-cut applications and setting time limits for authorisations. This reduced not only the time needed to apply for permits but also the time required to resolve such requests (Amici et al., 2016[44]).26
To provide a seamless experience and reduce the cost of gathering information, designers of one-stop shops should keep two broad principles in mind. The first is to embed them in broader administrative simplification strategies, as one-stop shops are only one of the tools for improving the business environment. Other tools, such as administrative clarifications and simplifications, might also be considered. The second principle is to make sure the one-stop shop is user-centred and based on relevant events in the life of a company (creation, expansion, dissolution). Since the necessary information can be scattered across different government bodies, gathering and putting it in a user-friendly format might require significant upfront costs and coordination across different government levels and agencies (OECD, 2020[42]).27
Digitalisation requires supportive legislation and infrastructure
Effective digitalisation requires a foundation of robust infrastructure and supportive legislation. Reliable digital infrastructure, such as broadband connectivity and secure digital payments and identification systems, enables seamless service delivery, while clear legal frameworks ensure data security, interoperability and trust. However, most OECD countries have not achieved a fully digitalised public sector. According to the OECD Digital Government Index, which measures the transition of OECD member countries towards the “integrated and coherent development of digital governments” across six dimensions,28 in 2023, the average score of OECD countries was 0.6 on a scale of 0 (no digital government) to 1 (fully developed digital government) (OECD, 2024[45]).
Digitalisation requires physical infrastructure
As of 2019, all OECD countries except Japan had set national targets for broadband availability (OECD, 2019[46]). Nevertheless, as of 2020, small cities still had internet speeds that were 60% lower than those in more urban regions despite similar levels of internet coverage (Figure 1.5). Government programmes may be necessary to bridge gaps in broadband access and other physical infrastructure required for digitalisation. Areas with low population density, such as regions with no urban centres and no small cities, may not have enough users to ensure profitability for private providers, so governments may need to intervene to ensure a minimum level of broadband provision (OECD, 2019[46]).
Note: Household internet penetration covers 188 large (TL2) regions. Number of regions in each category given between parentheses on the horizontal axis. Countries covered: AUT, BEL, BGR, CHL, CZE, DEU, DNK, ESP, EST, FIN, FRA, HRV, HUN, IRL, ITA, LTU, LUX, LVA, MEX, NLD, POL, PRT, ROU, SVK, SVN, SWE. Internet speed covers 198 regions from AUT, BEL, BGR, DEU, DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, IRL, ITA, LTU, LUX, LVA, NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR.
Source: Eurostat for broadband access, OECD calculation based on Ookla for internet speed.
Several options are available to ensure adequate physical infrastructure for digital government services. The first option is to implement universal service frameworks, which mandate access to a predetermined set of services. Canada, Belgium, Finland, Switzerland and Sweden all have universal service frameworks for providing digital infrastructure.29 Universal service frameworks can take the form of mandates requiring infrastructure providers to serve all areas, including those with negative economic returns, or obligations to contribute to a fund used to finance services in such areas. A second option is for governments to invest in the physical infrastructure themselves, typically requiring that the infrastructure be open access to avoid monopolies in underserved areas and encourage competition among internet providers. In New Zealand, open access is a requirement for companies building broadband through public tenders, which are widely used in rural and remote regions. The Australian government established a company that would provide internet access nationwide. The risk is that such policies may crowd out private investment in digital infrastructure. A third option, which aims to avoid the crowding-out effect, is to promote private investment in such infrastructure in underserved areas, for instance, through competitive tenders or, in some cases, tax incentives. 30 Such programmes may include mandates for open access or minimal service provision in underserved areas (OECD, 2018[47]).
Subnational governments can make investments in broadband infrastructure directly, but several framework conditions should be in place to ensure such investments are effective: i) fiscal space and finance capacity, ii) investment capacity, including staff with the appropriate skills, iii) coordination and cooperation mechanisms across levels of government, including inter-municipal cooperation mechanisms, and iv) regulatory and legal frameworks to allow subnational governments to use the appropriate funding instruments (OECD, 2021[48]).
Ecosystems for digital government services
National governments typically provide the infrastructure of digital ecosystems, which acts as the base for other digital services and thus requires interoperability and ideally automatic sharing of information across public bodies. For instance, electronic ID systems enable seamless communication between different government services, such as the business registry and the tax authority, and they are typically developed at the national level. Denmark, for example, has developed MitID Ehrev, an ecosystem of digital government services based on the once-only principle, with estimated savings of EUR 100 million per year between 2014 and 2020 (Box 1.6).
Denmark has developed an ecosystem of digital services based on the once-only principle. The electronic identification (eID) system called MitID Ehrev allows firms to access digital government services, including the portal of the Danish Business Authority (www.virk.dk). Virk is a one-stop shop built according to the once-only principle and provides a wide range of business services, such as registering and dissolving a business, requesting sickness and maternity allowances for employees, paying holiday hours, and reporting VAT. According to the Danish government, the eID is used by all employer companies to log in to public self-service solutions, both national and subnational.
Digital ecosystems can generate important savings for both firms and the government by decreasing the administrative burden on both sides. A study sponsored by the European Commission estimated in 2014 that potential savings from the Danish programme that introduced the once-only principle in digital government services could be around EUR 100 million per year by 2020 (European Comission, 2014[38]). Implementing the Danish approach in the other EU countries could generate savings of EUR 5 billion (European Commission, 2022[49]).
This digital ecosystem also enabled the Danish government to take measures quickly during the COVID-19 pandemic. Since the government already had an up-to-date record of the firms in the country and their activity, they were quickly able to disburse stimulus checks to compensate firms for losses incurred due to lockdowns. By 13th March 2020, over 100 000 businesses had received a total of EUR 7.1 billion (European Commission, 2022[49]).
One strategy to incentivise and support the uptake of digital tools by different levels of government is to fund competitive grants (Box 1.7). Competitive grants have several advantages, including easily controllable budgets and a high probability that the resulting projects will align with the objectives of the institution organising the grant. At the same time, they involve high administrative costs, which might prevent remote regions with low administrative capacity – precisely the regions most likely to be the target of such programmes – from applying.
The European Union’s Recovery and Resilience Facility
The European Union has dedicated EUR 490 billion in loans and grants to member states as part of the Recovery and Resilience Facility, an instrument to aid economic recovery from the COVID-19 pandemic. Member states that have already received financing chose to exceed the minimum 20% compulsory allocation to digital transformation, spending on average 26% of their financing, or EUR 127 billion across the EU (European Commission, 2023[50]).
Australia’s Regional Connectivity Program (RCP)
Australia’s RCP programme consists of competitive grants that support the implementation of place‑based telecommunications infrastructure projects to improve digital connectivity across rural and remote regions. Prior to its 2023 round, 223 projects had been delivered with investment totalling AUD 413 million. In the programme’s latest round, AUD 160 million is available, AUD 110 million for upgrades to broadband and mobile services across eligible localities and AUD 50 million for delivering mobile coverage in line with the Mobile Black Spot Program. A share of this funding, AUD 32.5 million, is ringfenced for Indigenous communities in order to reach the 2026 goal of equality of digital inclusion for the First Nations population. (Australian Government Department of Infrastructure, Transport, Regional Development, Communications and the Arts, n.d.[51])
Another strategy to increase the uptake of digital tools is for national governments to create and coordinate pilot projects to encourage the digitalisation of subnational governments. This strategy may be particularly suited to countries lacking experience in e-government or those with significant regional differences in digital capabilities. For instance, Hungary and the Republic of Türkiye have developed digital platforms at the national level with different modules, such as document management, business registry management and tax management, which municipalities can implement according to their needs (Box 1.8). One disadvantage of this type of national strategy is that larger municipalities that have developed their own e-government capabilities might perceive national, one-size-fits-all platforms as a step down from their tailor-made solutions. This disadvantage may be compensated by the digitalisation of smaller municipalities with limited resources and the interconnectivity advantages provided by a national platform.
Türkiye’s e-Municipality
Since 2014, the Turkish government has offered municipalities a free platform for online local government services. The platform, called e-Municipality, has around 70 modules, including payment, information on licences, document management systems, and notifications. It was initially designed for smaller municipalities with limited resources, but since 2018, municipalities have been required by law to use the platform (Republic of Türkiye, 2018[52]; OECD, 2023[53]).
Hungary’s Municipality ASP
The Hungarian parliament passed the 2015 General Rules for Electronic Administration and Trust Services Act (Hungarian Parliament, 2015[54]). Thereafter, all bodies of public administration were legally required to provide online services to businesses and citizens. The tool procured to provide these digital capabilities was the central Municipality Application Service Provider 2.0 (ASP). Already in use in other nations, the ASP model promised a cost-effective solution due to its scalability and interoperability.
Upon implementation, the ASP provided both digitalised and interoperable back-end capabilities to local governments as well as user-oriented local digital services, levelling up a minimum standard of service provision to participating regions and localities. Administrative capabilities include ICT management, support for electronic payments, external/internal data communication and integration. Services provided include management of local municipal finances, property cadastre access, industrial and commercial management systems, and a local government e-administration “single point of contact” portal (European Commission, 2019[55]).31
The legal requirement to provide online services, together with incentives provided by the central government, such as financial support and infrastructure, led to a widespread adoption of the ASP system. As of 1 January 2019, nearly all 3 197 local governments (3 178 municipal-level local authorities and 19 regional-level counties) used the platform with a daily engagement of 30 000 users. As of 2021, 620 000 businesses used the system (European Institute of Public Administration, n.d.[56]).
Source: OECD policy workshop, “What helps firms grow in regions?”, 22 June 2022.
Subnational governments may consider building digital ecosystems for their own areas where national initiatives do not exist. For instance, regional authorities in the Spanish region of Murcia created a digital platform for tourism companies to ease their access to digital services. The platform includes price quotations, scheduling tools and product design tools (de Mello and Ter-Minassian, 2020[40]).
To ensure the coherence between subnational digital initiatives and national infrastructure, national governments may consider two complementary approaches. The first is to set framework conditions early in the digitalisation process, in close coordination with subnational governments. This approach ensures a degree of technical and procedural compatibility, which may facilitate future integration at the national level. Another approach is for national governments to provide a central infrastructure platform which can enable interoperability with subnational platforms. One example is Estonia’s X-Road, an open-source solution developed by the Estonian government which facilitates the exchange of information between various government databases. X-Road is designed to be scalable and modular, allowing new databases and institutions to be integrated as digitalisation progresses. The system was adopted by two regions in Argentina, Neuquén and the capital Buenos Aires, to safely and efficiently link their various public databases and provide residents with paper-free government services such as registration.32 A third approach is to use the lessons learned by trialling systems at the subnational level to build a national system. For instance, in principle, if more Argentinean regions adopted such technology, they could connect their databases at the national level.
The importance of digital skills
Strategies to improve the digital literacy of public servants, firms and citizens can ensure the widespread adoption of digital services and make the most of digital infrastructure investments that governments put in place. Estonia’s digital transformation strategy, which began in the 1990s, shows how investment in both digital infrastructure and skills can propel economic development and growth (Box 1.9). As of 2023, most public services in Estonia are digitally available and the country scores overall 6th in the 2023 OECD Digital Government Index and 2nd in having a data-driven public sector (OECD, 2024[45]).
In the early 1990s, Estonia’s government began an in-depth programme of digitalisation. The priorities of this strategy were i) investment in digital infrastructure across urban, rural, and remote areas; ii) training in digital literacy; and iii) the development of a range of e-services.
As of 2022, most public services in the country are digital, including a range of initiatives designed to support businesses such as an e-Residency, e-Business Register, and e-Banking. Through the e‑Residency initiative, the government issues a digital identity for entrepreneurs, allowing them to start a company based in the EU with remote access to Estonia’s business environment. Entrepreneurs can make use of the e-Business Register, taking less than three hours, while e-Banking services enable online banking as well as management and declaration of taxes.
The combination of Estonia’s business-friendly digital literacy, infrastructure and services has attracted over 21 000 companies and generated more than EUR 35 million in tax revenue.
Source: OECD policy workshop, “What helps firms grow in regions?”, 22 June 2022.
Subnational governments can contribute to ensuring a sufficient level of digital skills among the population. For instance, they can develop skills development programmes or digital help desks. In the Netherlands, most municipalities have a digital help desk where residents can get help regarding digital government services. There are similar digital help spots in libraries throughout the country, to ensure disadvantaged populations, such as the elderly or migrants, can also enjoy the benefits of digitalisation (Digital Government Information Point, 2024[57]).
Governments should ensure regulations are fit for purpose and anticipate the evolving needs posed by technical progress. For existing regulations, this could mean regular reviews to avoid the proliferation of obsolete regulations. For upcoming regulations, it involves Regulatory Impact Assessments and the consideration whether there are benefits to experimentation through regulatory sandboxes and pilot projects.
Review regulations regularly
To ensure regulations do not pose an undue burden on firms or distort competition, governments should consider evaluating rules regularly. For new regulations, Regulatory Impact Assessments (RIA) can provide an overview of costs and benefits, as well as possible interactions with existing regulations (OECD, 2020[58]). Analysing policies both during the design phase and after the implementation phase can help regulators check whether the regulation achieved its goal efficiently and provide avenues for further improvements. For existing regulations that have not been subject to an RIA, governments can use regulatory reviews to ensure regulations stay up to date and fit for purpose (Box 1.10).
Regulatory reviews fall into three main categories: programmed reviews, ad-hoc reviews and ongoing stock management reviews.
Programmed reviews take place on a date established in advance. They can be embedded in existing regulations, for instance, through a mandate that specifies that the regulation be reviewed at a pre-defined period. In Korea, such reviews are the norm for all new and amended acts and subordinate statutes, and the effective review period should be below five years.33
Ad-hoc reviews are undertaken in response to a specific need. Public stocktaking reviews are typically broad and require significant public resources and consultations, which is why they are undertaken less often (every five to ten years). However, governments can also undergo more targeted reviews, such as principle-based reviews on specific topics. One example of a principle-based review is the one undertaken by Denmark’s Business Forum on Business Regulation, which identified thirteen themes relevant to businesses and proposed changes to promote efficiency. The Forum’s proposals were based on the “comply or explain” principle – either the government implemented the proposal or had to explain why it would not. In the first four years since its launch in 2012, two-thirds of its 600 proposals had either been fully or partially implemented (OECD, 2020[59]).
Finally, the third category of reviews is ongoing stock management reviews. Some administrations choose clear burden reduction targets, for instance, simplifying a specific process to take a pre-specified duration (e.g., opening a business should take less than a certain number of days) or removing a pre-specified number of rules. Others rely on simple decision rules, such as the European Union’s “one in, one out” approach.
Source: For more information about regulatory reviews, see the OECD Best Practice Principles for Regulatory Policy (OECD, 2020[59]).
Both national and subnational authorities can organise regulatory reviews.
At the national level, the Commerce Commission of New Zealand reviewed existing land regulations and found that restrictive land covenants could restrict entry into specific markets and limit competition. A supermarket chain could sell one of its stores under a covenant preventing the new owner from selling to a competing chain. To limit the anticompetitive effects of land covenants, the Commerce Commission suggested assessment criteria and penalties (Commerce Commission New Zealand, 2022[60]).34
At the subnational level, the city of Chicago in the United States underwent an in-depth review of its licensing rules in 2012 before streamlining them into simpler regulations. The review found regulations that had become obsolete, such as rules governing licences for tobacco machines, which had become a rarity in the city by that time. Eliminating obsolete rules simplified regulation without compromising health and safety concerns (Ash Center for Democratic Governance and Innovation, 2015[19]). A similar review by the government of Ontario in Canada identified several ambiguities in competition provisions and proposed a bill to encourage competition through better information for businesses.35
Adopt innovation-friendly and agile regulation in fast-moving sectors
Administrative requirements can trail behind technical change, acting as a barrier to innovation. To avoid the gap between existing regulations and the needs of new technologies becoming too large, governments can adopt agile regulations, which emphasise iterative development rather than a once‑and‑done approach. Agile regulations were originally used to regulate financial products (FinTech) but have been expanded to include other industries.
Agile approaches to regulation ensure that regulators learn about new technologies and intervene as necessary as they develop, rather than impose excessive barriers upfront and thereby stall innovation. For instance, in the early 2010s, some emerging businesses, such as hydroponic farms or food trucks, were not falling into existing licensing categories in Chicago (United States). To enable innovative firms to start their activity faster, a new type of business permit for “emerging businesses” was introduced during the regulatory reform of 2012. The permit was valid for two years, during which time the authorities could evaluate whether there was a further need for regulation (Ash Center for Democratic Governance and Innovation, 2015[19]).
Regulatory sandboxes are one of the most common forms of agile regulation, as they can foster innovation while containing the possible disadvantages of new technologies. Sandboxes provide a safe space for experimentation, allowing firms to test ideas while facing limited regulatory hurdles, usually for a limited time. Although some technologies can be appropriately tested in controlled environments, there is also value in testing in real-life situations and understanding the needs and pitfalls of new technologies.
One sector where regulatory sandboxes have proliferated is the regulation of autonomous vehicles (AVs), with sandboxes in some large urban areas and along major transport routes. Provided sufficient due diligence is carried out, often under the purview of multiple regulatory stakeholders, sandboxes can also provide authorisation to test a range of products in higher-risk areas. For instance, California in the United States requires AV operators to have a permit and comprehensive insurance, provide a self-assessment report and publicly file collision reports. The rules also require AVs to have a human driver, which allows experimentation and data-gathering while limiting liability and risks (Burd, 2021[61]). Similarly, two German sandboxes for the transport industry have been set up in Hamburg and Baden-Württemberg to encourage innovation. The first is the Hamburg Electronic Autonomous Transportation (HEAT) Project, which evaluates the possibility of introducing self-driving minibuses in urban areas. The second is the Baden-Württemberg Autonomous Driving Testbed, which allows automated cars, commercial vehicles, and delivery services to drive on all types of public roadways (Test Area Autonomous Driving Baden-Württemberg, 2024[62]; Hamburg City Hall, 2023[63]).
While many sandboxes have a clear sectoral focus, this need not always be the case. The Sandbox.Rio initiative in Rio de Janeiro is a cross-sectoral regulatory sandbox that offers entrepreneurs access to predesignated zones in the city to test their innovative solutions. In its first cycle, scheduled to end in 2025, four pilot projects were selected: a drone-based beverage delivery service, an electric scooter sharing scheme and two infrastructure networks – one for parcel delivery points and another for fast-charging stations. All selected projects required some regulatory flexibility, as they offered novel products and services for which no regulatory framework existed. Sandbox.Rio served as both a regulatory sandbox and a transparent mechanism for project selection. It also encouraged the collaboration between public authorities and private companies to identify opportunities, address regulatory barriers and manage security concerns. The data generated by these projects could inform future regulatory discussions. For instance, the data from the drone project will be shared with Brazil’s Department of Airspace Control (see Box 1.11).
Established in 2022 in Rio de Janeiro, Brazil, Sandbox.Rio is a regulatory sandbox that was set up without a specific sectoral focus. The beneficiaries were chosen through a Public Call Notice, which required clear and measurable objectives and a final technical report (OECD Observatory of Public Sector Innovation, 2023[64]).
The four finalists were selected based on criteria such as the degree of innovation, business maturity, community impact, risks and mitigations, and financial sustainability. The sandbox means they are granted a temporary authorisation from City Hall to test their products in designated locations, conditional on careful monitoring of the projects.
First, a large international brewing company partnered with a drone logistics company to transport beverages to consumers in specific areas. The drone company was the first firm to obtain a Certificate of Experimental Flight Authorisation issued by the Brazilian authorities. Data from the pilot project is to be shared with the Department of Airspace Control (DECEA) to evaluate the safety and efficacy of the drone system (Rio de Janiero City Hall, 2023[65]).
Second, a Brazilian electric car-charging startup partnered with an investment company with the aim of creating a network of fast-charging stations for electric vehicles, such as taxis, at pre-defined locations across Rio de Janeiro. Since the project required the use of public spaces to build charging stations, it benefited from the sandbox by obtaining a regulatory fast-track for the construction permits.
Third, a company created a sharing scheme for electric scooters, which made use of public spaces for parking and integrated with other modes of transportation. The project required regulatory fast-tracking for defining traffic and parking rules, as well as building the infrastructure required for parking, charging and maintaining the scooters.
Fourth, another company installed delivery points to facilitate package delivery logistics across Rio’s informal neighbourhoods, known as favelas. The project required permission from the municipality to identify and organise locations for delivery points, usually in public spaces which were easily accessible.
Pilot projects and innovation testbeds are alternative agile regulatory approaches to new technologies. Pilot projects typically focus on a specific area of regulation or implement a proposed regulation in a limited area to allow for learning and further modifications before expansion. Innovation testbeds are similar to regulatory sandboxes but focus more on the technical feasibility of ideas rather than their regulatory aspects. One example of such an approach is the strategy of the city of Alba Iulia, Romania, which aimed to become a hub for smart-city solutions. The city created a pilot scheme for smart city technologies, which attracted several large firms to cooperate on the provision of digital infrastructure that has permitted the testing of smart solutions (Box 1.12).
In December 2016, Alba Iulia launched a pilot scheme aimed at transforming the city into Romania’s first smart city. The scheme aimed to foster the growth of firms dedicated to smart city solutions and promote innovation and sustainability through a collaboration between the national government, local governments, and private enterprises. To this end, Alba Iulia invested in infrastructure to aid entrepreneurs and new firms in testing their services and products within a streamlined regulatory environment (Nicula et al., 2020[66]).The scheme partnered with firms in the technology sector.
As of 2022, the city had tested 100 digital apps with 45 partners spanning domains of e-governance and e-administration, to smart tourism, sustainable transport, and smart planning. Of the total initiatives piloted in the project, 60% fall into digital technology solutions. Given the increased dynamism of the local business environment, the local government has had to develop an agile and flexible system of permits and licences to respond to the large number of projects submitted.
Source: OECD policy workshop “What helps firms grow in regions?”, 22 June 2022.
Agile approaches and regulatory experimentation have a cost, and regulators should be aware of trade‑offs (OECD, 2024[67]). First, derogations from existing legislation might distort competition between firms by giving preferential treatment to some. To maintain a level playing field, the US State of California set clear eligibility rules for all firms that aimed to test AVs and allowed all firms access. Another way of ensuring equitable access is through competitions that are open to all, as in the example of Sandbox.Rio, when organising an open competition with transparent selection criteria. Second, regulatory experimentation might decrease legal certainty if rules change often, are not clearly communicated in advance, or are captured by specific interest groups. Changes in rules due to the information gained through regulatory experimentation might increase complexity and burdens. Third, regulatory experimentation and agile approaches can involve costs in addition to one-and-done legislation, such as coordination and communication between public and private bodies, setup, monitoring, and evaluation costs, as well as all costs associated with reviewing and modifying legislation, as needed.
Keep open channels of communication between government and business
Ensuring that regulation keeps up with the changes elsewhere in the economy requires governments to stay connected with the needs of businesses. One approach to facilitate the dialogue at the subnational level is to set up regional economic development organisations or regional investment hubs. The Right Place, a regional economic development organisation located in the Greater Grand Rapids region in Michigan, United States, provides business services for potential investors in the region. These include information about local commercial real estate, possible supply chain partners from the local business community, and state and local incentives.36
Organising forums with representatives of the private sector in specific regions is another approach to ensure policymakers are informed about the needs of businesses. Since 2018, the “Territoires d’Industrie” programme in France has aimed to encourage dialogue in a structured way. It brings together government bodies, policymakers, and business representatives from regions with strong industrial identities, encouraging them to identify the needs of their specific regions and devise plans to tackle those challenges. Such programmes allow governments to adapt regulation and infrastructure investments to target their reforms better, ensuring the regional business environment responds to the needs of the private sector (Box 1.13).
With the “Territoires d'Industrie” (TI) programme, France seeks to strengthen its competitiveness by building on local dynamics and encouraging regional development and cohesion.
Since 2018, the programme has aimed to implement concrete responses to the territorial challenges facing industry in rural areas, particularly employee mobility, land availability and skills development. The TI programme is structured around several key areas: the attractiveness of rural areas for industrial jobs; training, recruitment, and mobility of employees to meet companies' labour needs; the digital and ecological transition; and the availability of land and the revitalisation of brownfield sites, in particular by simplifying administrative procedures. The programme mobilises national, regional, and local players in support of the development of industry in the regions. It brings together local partners in each TI region around a private (industry) and public (local elected representative) pairing to build a tailor-made action plan based on the issues and needs expressed at the local level.
The TI programme covers 149 territories, consisting of intercommunal authorities (intercommunalités) or groups of such authorities. Intercommunal authorities are a cooperative structure where municipalities (communes in French) group together to manage public services or development projects more effectively, e.g. in the area of public transport, urban planning or waste management.
Most of the TI territories are located in rural areas, peri-urban areas and small and medium-sized towns throughout France and the French overseas territories. The industrial employment rate in TI regions is higher than elsewhere (15.3% on average compared with 9.5% outside the TI regions). These areas have a strong industrial identity and know-how and are seeking to strengthen their industrial dynamics and strategies.
The TI programme makes it possible to target all existing or dedicated strategies, policies, and budgets around industrial recovery on the ground. Each TI is based on a contract, which may or may not be formal, setting out the financial and social commitments of the project sponsors, the region, the State and its operators, and the various public and private partners for a period of four years. This contractual framework enables the project's specific objectives to be aligned with regional and national guidelines. For the second phase of the programme (2023-2026), the five priorities are: skills, innovation, land, the ecological and energy transition, and governance and management of the programme. The evaluation of the TI programme on the implementation of the 2019-2022 period will begin with this second phase.
Source: OECD (2023), The Future of Rural Manufacturing, OECD Rural Studies, OECD Publishing, Paris, https://doi.org/10.1787/e065530c-en; OECD (2023), L'avenir de l'industrie manufacturière rurale: Étude de cas française, OECD Publishing, Paris, www.oecd.org/regional/rural-development/future-of-rural-manufacturing-case-study-france.pdf
Regulatory streamlining and simplification reforms can provide benefits beyond the decrease of direct costs associated with regulatory compliance. By implementing reforms to lower administrative burdens for firms, governments can reduce firms’ incentives to circumvent regulations, reducing corruption and promoting institutional integrity while improving the business environment as a whole (Jin, 2021[68]).
Corruption hurts firms across all regions. In half of the 227 large (TL2) regions of 31 OECD member and candidate countries, corruption was a severe obstacle to the operation of at least 1 in 10 firms (Figure 1.6). On the one hand, corruption promotes institutional dysfunction and resistance to change, worsening the business environment through excessive administrative burdens and a lack of trust in institutions. On the other hand, it reduces firms’ incentives to invest productively and innovate. Well-connected firms receive unfair advantages, which insulate them from competition and reduce their willingness to invest and innovate, while other firms are discouraged from competing with well-connected incumbents. The result is more uncertainty, fewer incentives for investment, and lower innovation, with negative effects for the whole regional economy.
Regional variations in the share of firms that find corruption a severe obstacle to their current activity (%)
Note: OECD calculations based on World Bank Enterprise Survey data for 229 TL2 regions from AUT, BEL, BGR, CHL (2010), COL (2017), CRI (2010), CZE (2009), DEU, DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, IRL, ISR (2013), ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR. Figures refer to the period 2018-21, unless stated otherwise in parentheses.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]).
Reducing administrative and regulatory burdens for firms can help reduce corruption
Corruption tends to coexist with other types of institutional dysfunction, such as excessive regulation, limited transparency and discretionary enforcement. Countries that are typically associated with very low levels of corruption, such as Sweden and Denmark, also have some of the lowest scores for regulatory burdens, as measured by the OECD Product Market Regulation indicator. Similarly, regions where firms are more likely to find corruption a severe problem are also more likely to have issues with the judicial and business licensing systems (Figure 1.7).37 Heavy administrative burdens, complex regulations, and low levels of transparency and accountability create fertile ground for corruption by increasing both the incentives and opportunities for illicit behaviour. Ambiguous rules provide public officials with greater discretion, which businesses may seek to influence through bribes, while weak oversight lowers the risk of detection (Shleifer and Vishny, 1993[69]; Djankov et al., 2002[70]).
Note Panel A: The product market regulation (PMR) score is a composite indicator that measures the extent of Product Market Regulation and refers to the year 2018. Higher values correspond to more product market regulation. For the corruption indicator, data available and included in the sample cover mostly the years 2018-21. Countries included: AUT, BEL, BGR, CZE, DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, ITA, LTU, LUX, LVA, MEX, NLD, POL, PRT, ROU, SVK, SVN, SWE.
Note Panel B: Corruption indicator is the share of firms that find corruption a severe obstacle to their activity in a large (TL2) region. The other indicators are defined in a similar fashion, replacing corruption with business licensing, judicial system, labour regulation, and trade regulation, respectively. Data available and included in the sample covers mostly the years 2018-21. Sample size: 227 TL regions. Figures refer to the period 2018-21, except for CZE (2009), CHL, CRI, MEX (2010), ISR (2013), and COL (2017). All correlations are statistically significant at the 5% level.
Source: OECD calculations based on the OECD PMR Index and the World Bank Enterprise Surveys (World Bank, 2024[23]).
Regulatory simplification can serve as an effective anti-corruption tool by reducing complexity, increasing transparency and providing regulatory predictability. Establishing clear and transparent rules, possibly enforced by automated systems, can limit the discretionary powers of public servants, reducing the risk of abuses such as delaying procedures, selectively fast-tracking processes or interpreting rules in favour of well-connected firms. For example, the 2002 SARE reform in Mexico, which streamlined the process of starting a company, also increased the accessibility of information through the transparent communication of fees, procedures, and stakeholders in the registration process, reducing the scope for selective delays (Kaplan, Piedra and Seira, 2011[17]). By limiting the scope of interpretation by tax officials, simple rules reduce firms’ incentives to influence their decisions. In a study covering 104 countries over the period 2002-12, a 10% reduction in the time required to comply with tax requirements was associated with a 6% reduction in the share of firms that said a gift or informal payment was expected or requested during the tax inspection, while a 10% reduction in the number of tax payments led to a 4% decrease in corruption. Combining both a reduction in the time to comply and the number of payments had the most substantial impact, leading to a 10% reduction in corruption (Awasthi and Bayraktar, 2014[71]). This suggests that limiting registration restrictions and licensing requirements to the cases where they provide real public benefits can eliminate a source of bribes, while saving firms time and money on compliance (Rose-Ackerman and Palifka, 2016[72]; Santiso, 2022[73]).
Digitalisation can reduce corruption alongside reducing administrative burdens
Digitalisation is a key element in both reducing administrative burdens and decreasing corruption. Efficient and transparent interactions with public authorities, for instance through one-stop shops, reduce the incentives to seek other channels for solving administrative issues. Digitalisation can reduce interactions between firms and officials, limiting the opportunities for informal agreements. One study using data from the year 2013 on 1 000 municipalities from Italy found that for the average municipal one-stop shop, increasing ICT intensity from the average level to the level of the best-performing municipality would have decreased the number of phone calls required by businesses to obtain information by 20%.38
In the area of public procurement, digitalisation can enhance transparency and competition, addressing a major source of corruption and unethical behaviour in the public sector (Bertot, Jaeger and Grimes, 2010[74]). External scrutiny and competition can help compel public entities to follow proper protocols, limiting their ability to provide unfair advantages to preferred suppliers.39 Implementing digital public procurement platforms and publishing notices and awards online encourages competition from outside suppliers. One study estimates that increasing the number of information items published in public procurement tenders by 10% could have provided savings on public contracts of EUR 6 to EUR 12 billion per year between 2006 and 2015 in the European Union (Bauhr et al., 2019[75]).40
Digital tools can also empower citizens to hold their governments accountable. Digital trails for government services enable monitoring and reduce integrity risks. In 1999, the metropolitan government of Seoul, Korea, introduced the Online Procedures Enhancement for Civil Applications initiative (OPEN), a reform to address petty corruption. The initiative enabled the public to monitor the progress of procedures such as building permits, business licences, and environmental permits online. The expected duration of procedures was stipulated from the outset, acting as a benchmark. Crucially, digitalisation aided managers in conducting audits to identify delays and suspicious activity through “action and decision tracking and mechanisms for feedback or complaints” (Kim, Kim and Lee, 2009[76]). Delays were flagged and raised with officials when procedures exceeded pre-defined milestones. In the following eight years, delays were reduced from 15% to 2% (Kim, Kim and Lee, 2009[76]).
By encouraging entrepreneurship and investment, reducing corruption can boost innovation and long-term prosperity
Reductions in corruption are associated with important improvements in regional business performance, providing further support to regulatory reforms. Estimates from 24 countries, of which 21 OECD members, suggest that reducing the share of firms that find corruption a severe obstacle to their activity by 10% can lead to an increase in GDP per capita of 0.6%. This relationship between corruption and economic activity holds even when considering a range of other factors, such as human capital, infrastructure, and factors that are the same for all regions within the same country (Box 1.1).
Two channels can explain these effects. First, reducing corruption increases returns to investment and improves regulatory certainty, stabilising the business environment and encouraging firms to invest in the long‑term. Second, by strengthening trust in institutions, reforms that reduce corruption can help break the cycle of corruption and institutional dysfunction, allowing regions to provide quality public services and establish better framework conditions for greater long-term growth. The result is regional economic performance, with higher levels of output, innovation and jobs.
The following baseline equation identifies the relationship between corruption and regional firm performance in a large (TL2) region:
(Equation 1)
is the outcome (or dependent) variable in region r and country c. It can be GDP per capita, productivity (GVA per worker), investment (GFCF per capita), or a labour market outcome (participation, employment, unemployment).
is the share of firms in region r in country c that find corruption a severe obstacle to their activity.
is the degree of urbanisation in region r, measured as the share of the region’s population living in a Functional Urban Area (FUA).
is an indicator variable that is 1 if the region contains the capital of the country.
is the share of the population aged 25-64 that has completed primary education.
is the quality of digital infrastructure, measured as the average download speed in the region.
is a vector of dummy variables that capture characteristics that are constant across regions of the same country (country fixed effects).
is the error term.
The coefficient of the Corruption variable should be interpreted taking into account the country fixed effects. In other words, the parameter shows the effect on (regional firm performance) associated with increasing the share of firms that find corruption a severe obstacle compared to the country average. Thus, even if two countries have different average values of the corruption indicator, the regression analysis will provide the effect of increasing corruption in a region by one percentage point above the country average. This approach has the advantage of allowing the research to disregard other factors that are common among regions at the country level, such as the type of national government and the overall level of national institutions.
Corruption discourages investment and entrepreneurship
One of the adverse effects of corruption is that it decreases returns to investment and entrepreneurship, discouraging such activities in the aggregate. Estimates from almost 200 large (TL2) regions show that in the average region, a reduction of 10% in the share of firms that find corruption a severe obstacle to their activity could increase investment by 0.5%, as measured by gross fixed capital formation per worker (Figure 1.8).41 Similar effects were documented in the entrepreneurship literature for starting a new business.42 For instance, evidence from Brazilian municipalities with fewer than 500 000 inhabitants indicates that a 10% reduction in the share of funds affected by corruption in 2003 was associated with a 10% increase in the number of firms between 2003 and 2012. The effects of corruption increased over time, suggesting corruption has a compounding negative effect, possibly due to inefficient allocations of resources (Bologna and Ross, 2015[77]).43 The most affected industries were natural resources, manufacturing, construction, and transportation, the same sectors which the OECD had previously found to be most vulnerable to foreign bribery (OECD, 2014[78]).
Crucially, even small amounts of corruption can hurt entrepreneurship, supporting reform in all types of regions. In Sweden, a country that consistently ranks among the least corrupt in the world, municipalities which had higher perceptions of corruption in 2013 among municipal counsellors had lower rates of business formation in 2014. Reducing corruption by moving from a level of 3 to 1 in response to questions about the chances of being offered bribes as civil servants – where 1 signifies “not at all” and 7 indicates “to a very large extent” – could have increased the number of firms by 3% at the level of the whole country, an increase of around 500 firms per year (Wittberg, Erlingsson and Wennberg, 2023[79]).
Changes in GDP per capita and GFCF per worker (USD PPP 2015) associated with a 1 percentage point increase in the share of firms that find corruption a severe obstacle
 |
Note: The corruption indicator is the share of firms that find corruption a severe obstacle in the region. The baseline model includes controls for country fixed effects, the share of population living in a city, the share of population with more than primary education, internet speed, and a capital city dummy. Data refer to the year 2019 for the dependent variables and to 2018-21 for corruption (or the latest available year). Regressions are based on 179 TL2 regions for GDP and 170 regions for GFCF per worker from AUT, BEL, BGR, CZE (2009), DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]) and the OECD Regional Database (OECD, n.d.[24]).
Three channels explain how reducing corruption can encourage investment and entrepreneurship. First, reducing corruption lowers both the direct and indirect costs faced by businesses. Direct costs, such as bribes or favours exchanged for permits or public contracts, increase the overall cost of doing business. Indirect costs divert time and resources away from productive activities and toward managing informal relationships with public officials (Audretsch et al., 2022[80]; Audretsch et al., 2021[81]).
Second, lower corruption reduces the uncertainty of the business environment. Corruption fuels firm “empty churn”, which is an increase in overall firm dynamics reflecting a volatile environment that discourages long-term investment (see Figure 1.9).44 For the average region in the regression sample of 181 large (TL2) regions, increasing the corruption indicator by one percentage point would increase churn by 0.25%. While modest, the effect is statistically and economically significant. When corruption is high, firms rely on informal agreements, which are often illegal as well as difficult to enforce in the formal legal system. These arrangements create additional indirect costs, such as increased time spent negotiating with private or public sector counterparts or higher costs in case of litigation. Even if a firm can bear the greater cost, the outcomes are less certain – permits can be withdrawn and agreements arbitrarily adjusted. A business making a big investment after paying bribes to obtain the necessary permits may find itself in a vulnerable position, which may be exploited by corrupt officials. Alternatively, when officials change positions, firms need to renegotiate with a new counterpart, which increases uncertainty and costs.45 The empty churn effect is driven almost entirely by micro firms with fewer than 10 employees, suggesting the costs of uncertainty are especially high for such firms.46
Change in firm churn associated with a one percentage point increase in the share of firms that find corruption a severe obstacle (in percentage points)
Note: This graph displays the percentage point change in churn following a one pp increase in the percentage of firms indicating that corruption is an obstacle to their activities. The numbers are estimated coefficients from an ordinary least squares regression at the regional (TL2) level controlling for a range of other variables (country fixed effects, urbanisation, digital infrastructure, capital region indicator, human capital). Data available and included in the sample covers mostly the years 2018-21. Sample size for all firms: 181 TL2 regions from AUT, BEL, BGR, CZE (2009), DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE. For the results by firm size, only 157 regions are available due to no data available on churn by firm size in GRC, MEX, and SVN.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]) and the OECD Regional Database (OECD, n.d.[24]) and Eurostat.
The third channel is trust in institutions and its effect on the resources available for regions in the long term. By promoting institutional dysfunction, corruption undermines trust in public institutions, both at the regional and national levels (Figure 1.10). Even in countries with high institutional quality, such as Sweden, local exposure to corrupt practices – such as public officials being offered bribes – is associated with lower levels of social and community trust, even after controlling for a variety of individual- and municipal-level controls (Erlingsson and Lundåsen, 2019[82]). When businesses perceive institutions as corrupt, they anticipate unfair treatment unless they engage in bribery or offer favours. This perception weakens the legitimacy of public institutions, discouraging compliance with rules and regulations and undermining their ability to protect public interests.
The correlation between corruption (horizontal axis) and trust in government (vertical axis) is negative across both countries (Panel A) and regions (Panel B)
Source: National values of the trust in government indicator represent the share of respondents who declared they have trust in their government and come from the OECD Trust in Government series. The values cover the year 2019 or the latest year before then for AUT, BEL, CHL, COL, CRI, CZE, DEU, DNK, ESP, EST, FIN, FRA, GRC, HUN, IRL, ISR, ITA, LTU, LUX, LVA, MEX, NLD, POL, PRT, SVK, SVN, SWE, TUR. Regional values of trust on the right-hand side come from the regional version of the Trust in Government survey and represent the share of respondents who declared that they trust or are neutral to their government. The values cover 51 large (TL2) regions from AUT, BEL, DNK, EST, FIN, IRL, LVA, NLD, PRT, SVN in the year 2021. The corruption indicator was calculated using the World Bank Enterprise Survey and represents the share of firms in a region that responded that corruption is a “very severe” or “major” obstacle to their current operations.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]), the OECD Regional Database (OECD, n.d.[24]) and the OECD Government at a Glance indicators (OECD, 2023[83]).
Conversely, reducing corruption can help restore trust in public institutions, with far-reaching benefits for regional economies. Greater trust in institutions may improve tax morale, leading to increased public revenues that support long-term regional growth in regions. On average, firms in regions where corruption is more prevalent are more than five times more likely to perceive both tax administration and tax rates as a severe obstacle to their business compared to regions with low corruption (Figure 1.11). By contrast, efficient public spending can motivate taxpayers to pay their due. One study on Italian municipalities concluded that reducing the inefficiency of public spending by one standard deviation (the equivalent of moving from the public spending inefficiency of a municipality of fewer than 1000 inhabitants to that of a municipality of more than 50 000 inhabitants) would improve tax morale by the equivalent of moving one quartile of income distribution, from the lowest quartile to the second lowest (Barone and Mocetti, 2011[84]).47 Higher tax revenues, in turn, can improve the quality and quantity of public services, reinforcing both trust and economic performance in regions. In the European Union, regions with good institutions and less corruption benefitted more from structural funds in the period 1989-2006 (Becker, Egger and von Ehrlich, 2013[85]), transforming those funds into faster per capita income growth than regions with higher levels of corruption. This dynamic aligns with evidence showing that European regions with high levels of economic opportunity, as measured by good jobs and quality education, were also those more likely to report higher levels of institutional trust (OECD, 2023[86]; Dijkstra, Poelman and Rodríguez-Pose, 2019[87]).
Note: Corruption groups are defined by the tertiles of the share of firms in regions that find corruption a severe obstacle to their activity. Cut-off values: low corruption group (first tertile) is less than 5.8%, middle corruption group (second tertile) is between 5.8 to 25.3% and the high corruption group (third tertile) is more than 25.3%. Data come from 221 TL2 regions from AUT, BEL, BGR, CHL, COL, CRI, CZE, DEU, DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, IRL, ISR, ITA, LTU, LUX, LVA, MEX, NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]).
Reducing corruption can encourage innovation in regions
Reducing corruption, therefore, may allow firms to invest in more productive activities, including long-term innovation (Calvino and Criscuolo, 2019[88]). Estimates for close to 200 large (TL2) regions show that lowering the share of firms that find corruption a severe obstacle to their activity in the average region by 10% can increase innovation by 2%, as measured by the number of patents per million inhabitants (Box 1.12).48 This stems from two channels. The first is the investment effect described above. Reducing corruption encourages overall investment, some of which would be channeled to more long-term innovation. The second channel is competition. Reducing corruption removes some of the unfair advantages enjoyed by politically connected firms, allowing other players to contest the incumbents’ market shares, which may motivate such well-connected firms to invest innovation to preserve their lead.
Changes in number of patents per million inhabitants associated with a 1 percentage point increase in the share of firms that find corruption a severe obstacle
Note: The corruption indicator is the share of firms that find corruption a severe obstacle in the region. The baseline model includes controls for country fixed effects, the share of population living in a city, the share of population with more than primary education, internet speed, and a capital city dummy. Data refer to the year 2019 for the dependent variables and to 2018-21 for corruption (or the latest available year). Regressions results are based on 160 TL2 regions in the baseline and 151 regions in the right-hand model, which includes the share of workers in the knowledge-intensive (KIT) sector. Data on patent applications refers to 2015 or the latest available year, data on employment in knowledge-intensive services is from 2020 or latest year.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]) and the OECD Regional Database (OECD, n.d.[24]).
Although decreasing corruption encourages an overall increase in investment and innovation, this is not immediately seen in productivity levels. The reason is that an increase in employment compensates the value created by the new firms and investments, so that the effect of decreasing corruption on productivity, while positive, is not statistically significant. Estimates for 24 OECD and EU countries with available data show that a 10% reduction in the share of firms that find corruption a severe obstacle to their activity can lead to an increase in the employment rate of 0.3%. This increase is the result of both a decrease in unemployment and more participation, as more firms are created, and others expand as a result of higher investment (Figure 1.13).
Change in employment, participation, and (long-term) unemployment rates associated with a one percentage point increase in the share of firms that find corruption a severe obstacle (in percentage points)
Note: This graph displays the percentage point change in employment, participation, and unemployment following a one percentage point increase in the percentage of firms indicating that corruption is an obstacle to their activities. The numbers are estimated coefficients from an ordinary least squares regression at the regional (TL2) level controlling for a range of other variables (country fixed effects, urbanisation, digital infrastructure, capital region indicator, human capital). Data available and included in the sample covers the years 2018-21 and 179 TL2 regions from AUT, BEL, BGR, CZE (2009), DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]) and the OECD Regional Database (OECD, n.d.[24]) and Eurostat.
Small firms in low-income regions might benefit most from the reduction in corruption
Small firms in low-income regions could particularly benefit from regulatory reforms that reduce corruption in their region, as corruption amplifies both the location- and size-related disadvantages faced by these firms.
On the one hand, corruption can amplify location-related disadvantages. In regions in the bottom third of the GDP per capita distribution, almost four in ten firms with fewer than 20 employees find corruption a severe obstacle to their daily operations, four times more than in regions in highest third of the income distribution (Figure 1.14). Several reasons explain why firms in low-income regions are at disadvantage compared to those located in higher-income regions. Low-income regions tend to have lower overall demand for goods and services, as well as fewer amenities such as infrastructure. Furthermore, lower-income regions also tend to be less populated, which translates to less access to both human and financial capital, which tends to cluster in large urban areas (OECD, 2015[89]). Finally, firms in lower-income regions have fewer opportunities to benefit from spillover effects from FDI or more productive firms, which also tend to cluster more in large cities which are usually in high-income regions (Roca and Puga, 2016[90]).
Share of firms that find corruption a severe obstacle to their operations, by GDP per capita of the region
Note: GDP tertiles are calculated based on 298 TL2 regions in countries which have at least one region covered in the World Bank Enterprise Survey. The final sample includes 224 TL2 regions from AUT, BEL, BGR, CHL, COL, CRI, CZE, DEU, DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, IRL, ISR, ITA, LTU, LUX, LVA, MEX, NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]) and the OECD Regional Database (OECD, n.d.[24]).
On the other hand, corruption amplifies size-related disadvantages. On average, 20% of small firms with 5 to 19 employees find corruption a severe obstacle, a figure four percentage points lower for firms with more than 100 employees (Figure 1.15). The largest differences between regional perception of corruption of small and large firms are in Colombia and Türkiye, two of the countries which also host the regions with the largest share of firms that find corruption an obstacle.49 Small firms tend to have fewer resources to compensate for their location-based disadvantages, since they have fewer employees and more limited access to external sources of finance than bigger firms (OECD, 2019[91]). Corruption can amplify these disadvantages, by forcing firms to fight for preferential advantage to limited public services and increasing uncertainty. Since they have fewer resources, small firms are less able to spare the time and to engage corrupt politicians or the resources to fight unfair decisions about permits or licences in courts. The result is that small firms might have more limited access to fair licensing decisions or infrastructure, such as electricity connections or road access, if access is dependent on connections with corrupt officials.
Share of firms that find corruption a severe obstacle (%)
Note: OECD calculations based on World Bank Enterprise Survey data for 227 TL2 regions from AUT, BEL, BGR, CHL (2010), COL (2017), CRI (2010), CZE (2009), DEU, DNK, ESP, EST, FIN, FRA, GRC (2018), HRV, HUN, IRL, ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR. Figures refer to the period 2018-21, unless stated otherwise in parentheses.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23])
Institutions are “humanly devised constraints that structure political, economic and social interaction” (North, 1991[92]). Better institutions have been linked to more prosperity, productivity, and innovation (Rodrik, Subramanian and Trebbi, 2004[93]). They determine how the factors of production are generated, how they are distributed across various actors in the economy, and how they are employed in production. Quality institutions create a reliable framework for economic activity and foster trust between individuals, businesses, and government, which in turn encourages long-term investments and prosperity.
Institutions foster trust among groups of people by creating common rules. Trust is crucial in any economic transaction, as both parties depend on each other to fulfil their commitments. Without trust, either party may fear the other will change their mind and put them in a vulnerable position. The anticipation of such behaviour can lead even mutually beneficial agreements to fall apart before starting. Trust encourages long-term investments, such as depositing money in banks or investing in financial funds, which in turn provide firms with the capital necessary for pursuing new opportunities. Without trustworthy legal and regulatory systems, investments in new technologies, infrastructure, and many other ventures would be too uncertain, with negative impacts on economic growth, innovation, employment, productivity, and wages (North, 1991[92]).
Informal institutions such as unwritten rules build trust by shaping expected behaviours and building reputations. For example, codes of conduct and moral standards encourage individuals to keep their word and respect their peers, sometimes under the threat of social stigma. Respecting the rules builds reputation and strengthens trust. Informal institutions do, however, have some disadvantages. First, when trust is built on reputation and interpersonal relations, there is a tendency to work only with people from the trusted group, reducing the drive to explore other partnerships and suppliers and limiting productivity (Johnson, 2002[94]). Second, informal institutions can be insufficient for creating trust in larger groups, as the sheer number of transactions and individuals makes it challenging to monitor everyone’s reputations. Third, informal institutions tend to change slowly and organically, which can be a disadvantage if conditions change quickly in society, for instance, due to technological innovation (North, 1991[92]).
Formal institutions, such as laws and regulations, can build trust on a large scale and even between unfamiliar parties. Formal institutions are often the result of a deliberate design process, such as parliamentary debates and expert discussions. When well-designed, formal institutions foster trust because they create a shared understanding of the rules of the game such as property rights and contract rules, as well as the expectation of a fair legal system, should disputes arise. This allows businesses to seek partners beyond their immediate network, knowing that their agreements are legally enforceable if necessary. Thus, transactions can become more intricate and involve more parties from further away, opening new opportunities for innovation and growth (North, 1991[92]).
Obtaining construction permits is time-consuming, taking more than 70 days in half of the 227 regions with available data. Some of the time is lost due to the complexity of the process – on average, it takes 13 procedures to obtain a construction permit in OECD countries (World Bank, 2019[95]). Monetary costs can arise in the form of planning fees, advisory fees from developers, investments to comply with building code and safety regulations, impact assessment fees, impact fees, inspection fees, monitoring costs, environmental mitigations and more (Annex Box 1.B.1).50
Building or construction permits and associated fees. Typically, before starting construction work, firms need a building permit (for new developments) or a construction permit (for changes to an existing development or its use). A fee is often charged for issuing a permit.
In Germany, erecting or altering a building is subject to local zoning laws as well as Land (a federal state) building regulations. In the state of Brandenburg, for example, applications are typically managed by an Untere Bauaufsichtsbehörde des Landkreises or (supra-municipal) lower building supervisory authority, before the involvement of specialist government agencies (if required) and the municipality in question. Documentation consists of an application form, construction drawings, specifications. The fee amounts to 1.4 percent of the construction cost and at least 100 EUR. The process usually takes more than four months. The permit is valid for six years and includes all the required sub-permitting for the development in question.
Impact fees. These types of exaction are “one-time charges against new development to raise revenue for new or expanded public facilities necessitated by new development” (Nelson, 1994[96]).
In Orange County, Florida, United States, commercial impact fees are paid after the permit has been issued and Building Safety has been approved. Each case is assessed by Plans Coordination and other departments are invited to the review. Exemptions may apply where a building is replacing an existing one provided that the applicant can provide a Demolition permit. Credits can be applied in use change circumstances if the structure poses a lesser impact.
Environmental compensation. These are measures that aim to recoup some of the environmental costs that new developments incur on the local ecological environment. These costs can be in-kind (replacement of habitats) or out-of-kind (purchasing of credits from a “mitigation bank” or in-lieu-fee mitigations) as well as on-site (near to the development) or off-site (elsewhere when impractical) (Persson, 2013[97]).
In Sweden, county-level administration boards can demand compensation for environmental damage to ‘natural assets’ by infrastructure development projects. This could be, for example, the reconstitution local woodlands or natural habitats with a one-to-one ratio of damage to replacement (Persson, Larsson and Villarroya, 2015[98]).
Although the permitting process is broadly similar between countries, the efficiency of the process can vary across regions (Annex Figure 1.B.1). On average, the time required to obtain a construction permit varies by more than 100 days between the fastest and slowest regions within the 31 countries with available.51
Average time to obtain construction-related permit across regions and countries (days)
Note Panel A: Note: OECD calculations based on World Bank Enterprise Survey data for 222 TL2 regions from AUT, BEL, BGR, CHL (2010), COL (2017), CRI (2010), CZE (2009), DEU, DNK, ESP, EST, FIN, FRA, GRC (2018), HRV, HUN, IRL, ISR (2013), ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR. Figures refer to the period 2018-21, unless stated otherwise in parentheses.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]).
Some of these differences are explained by stricter requirements and more binding constraints in urban regions compared to low population-density regions. It takes 50% longer to obtain a construction permit in big cities than in regions with no urban centres or small cities (Annex Figure 1.B.2). Big cities have more competing uses of land, which leads to more complex decision-making involved in balancing the interests of more stakeholders when deciding whether to allow specific activities. Restaurants might bother existing residents with noise and odours; new shops might worsen congestion if the infrastructure is not ready to accommodate the new clients, and new production facilities might negatively affect the attractiveness of neighbourhoods. Construction permits also need to consider existing constructions, which are denser in cities, as well as facilities and infrastructure (roads, cables, access for residents during construction, etc.). By contrast, less urban regions tend to be more remote, less dense and have less diversified economic structures so that planning constraints can be less binding. Firms have more space to expand, and living areas can be further away from industrial areas, translating into fewer binding rules on economic activity (OECD, 2017[11]). Differences in requirements are compounded by differences in enforcement at the subnational level. In the case of environmental compliance costs in the United States, the variation at the county level was more than ten times the variation at the state level, suggesting that rules were enforced differently at the local and regional levels (Becker, 2011[99]). 52
Average time to obtain a construction-related permit (calendar days)
Note: OECD calculations based on World Bank Enterprise Survey data for 218 TL2 regions. Number of regions in each category is given in parentheses on the horizontal axis. Countries covered: AUT, BEL, BGR, CHL (2010), COL (2017), CZE (2009), DEU, DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, IRL, ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR. Figures refer to the period 2018-21, unless stated otherwise in parentheses. Regions with large cities: TL2 regions that include at least one TL3 metropolitan region which classifies as a large metropolitan region, i.e. more than the population lives in a Functional Urban Area (FUA) of 1.5 million inhabitants. Regions with medium cities: TL2 regions which include at least one TL3 region which classifies either as a metropolitan region (more than half the population lives in a FUA of more than 250 000 inhabitants but fewer than 1.5 million) or as a non-metropolitan region with access to a metropolitan area (at least half of the population can reach a FUA of at least 250 000 inhabitants within a 60-minute car ride). The last category is TL2 regions which include only non-metropolitan regions, either with access to a small or medium city or remote.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]) and the OECD Regional Database (OECD, n.d.[24]).
Regions can encourage firm creation by simplifying and accelerating the process of obtaining a construction permit. On average, regions with longer approval times for construction permits also tend to have lower rates of firm creation (Annex Figure 1.B.3). The acceleration of permits should result from clearer requirements, streamlined procedures and faster processing times and should not come at the expense of safety. Complex permitting requirements can reduce the incentive to start a firm by increasing prospective entrepreneurs' cognitive burden and costs. They also increase uncertainty, especially if waiting times and costs are not specified in advance or permits elapse before all the requirements are met. Inefficient processes such as repeating information to more than one issuing body, hard-to-access requirements, paper-only procedures or a lack of transparency regarding status updates and waiting times can all increase uncertainty and costs, especially if firms need to hire facilitators to navigate the rules (OECD, 2020[42]).53 One example of a reform that streamlined regulation was a series of changes instituted in Lithuania between 2010 and 2014, which focussed on clarifying the process, consolidating the building categories, enhancing transparency and reducing the number of institutions responsible for providing the permit. The process became more straightforward, as it now involved five rather than seven steps, and several steps could be followed in parallel, saving time and resources. As a result, the decision-making process was shortened by more than a month and a half in some cases, and Lithuania jumped ten positions in the World Bank’s “Doing Business” ranking between 2014 and 2015 (OECD, 2015[100]). Similarly, in Italy, reforms that incentivised municipalities to provide more construction permits after 2003 led in the next two years to an increase of five percentage points in the number of firms and two percentage points in the number of workers compared to municipalities not affected by the reform (Fregoni, Leonardi and Mocetti, 2020[101]).54
Firm creation rate (new firms as % of total firms) decreases with the number of calendar days to obtain a construction permit
Note: Data consists of 176 TL2 regions from AUT, BGR, CZE, DNK, EST, ESP, FIN, FRA, HRV, HUN, ITA, LTU, LVA, NLD, POL, PRT, ROU, SVK. Firm births refer to 2019 or the latest available year and waiting times for construction permits refer to 2018-21 except for CZE (2009).
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]) and the OECD Regional Database (OECD, n.d.[24]).
In 2023, taxes amounted to 34% of GDP at the national level and 43% of the revenues of subnational governments in the OECD, with the other revenue categories being grants and subsidies (40%), tariffs and fees (14%), property income (2%), and social contributions (1%) (OECD, 2025[102]; OECD, 2025[103]). Taxation funds social welfare programmes, infrastructure, and public services for national and subnational governments. At the same time, taxation is also an important source of compliance costs. The average firm in the European Union and United Kingdom spent 2% of turnover on tax compliance in 2019, which amounted to EUR 200 billion or 1.3% of GDP. Taxes that are typically set at the subnational level, such as property and real estate taxes and local and regional taxes, represented around a quarter of these compliance costs (European Commission et al., 2022[104]). Taxation is also an important decision factor in decisions about where to locate, incorporate, and invest. Even in a centralised country like France, researchers found that differences in local taxes can affect the rate of business creation in the period 1993-2004 (Rathelot and Sillard, 2008[105]). Another study, this time using data from the United Kingdom between 1984 and 1989, found that local taxes on non-residential properties could have small negative effects on the employment growth of firms, but not on the rate of business creation. In the period studied, business taxes represented up to a quarter of the occupancy cost of rented commercial property. (Duranton, Gobillon and Overman, 2011[106])
Wherever possible, administrative and compliance costs for taxpayers should be lowered to boost entrepreneurship and productivity. In half of the 227 regions with available data, more than 15% of firms found tax administration a severe obstacle to their current operations. In a quarter of regions, this number was above 33% (Annex Figure 1.C.1). Some of the complexity embedded in taxation filings brings important benefits, such as allowing the state to target individuals or firms for certain measures or to ensure a progressive tax system with different rates at different levels of the tax base. However, the complexity of the tax system or of the process itself can also be the result of path dependence rather than conscious choices trading off benefits and costs (Slemrod, 2010[107]). In such cases, streamlining brings efficiency benefits with negligible drawbacks.
Share of firms that find tax administration a severe obstacle to current operations (%)
Note: Based on 227 TL2 regions from 31 countries. Data for the following countries is not available for all regions: Chile has information for 4 out of its 16 regions, Colombia has information for 5 out of its 33 regions, Costa Rica has information for 1 out of its 6 regions, Finland has information for 4 out of its 5 regions, Israel has information for 2 out of its 6 regions, Mexico has information for 8 out of its 32 regions, Portugal has information for 6 out of its 7 regions and Türkiye has information for 17 out of its 26 regions. Data refers to 2018-21, except for Czechia (2009), Chile, Costa Rica and Mexico (2010), Israel (2013) and Colombia (2017).
Source: OECD calculations based on World Bank Enterprise Survey (World Bank, 2024[23]) data.
Compliance costs reduce productivity and discourage entrepreneurship by diverting resources from value‑creating activities. A 1% increase in tax payments led to a 1.3 percentage point decrease in business entry rates across 51 countries between 2000 and 2004 (Djankov et al., 2010[108]). Estimates for Switzerland find that cutting the time to pay taxes by 1% could increase firm creation by 0.2%. The effect is related to the complexity of the tax code as the number of tax brackets does not seem to affect firm births but a reduction in tax code complexity – measured by the number of words in the tax code – by 1% would increase firm births by 0.9% (Bacher and Brülhart, 2012[109]).
Lowering compliance costs associated with taxation might particularly benefit smaller firms in regions without large cities. Firms in regions with no urban centres or small cities are, on average, 9 percentage points more likely to find tax administration a severe obstacle to their daily operations – 29% compared to 19% (Annex Figure 1.C.2. ). Several reasons underlie this pattern. First, firms in less urban regions are smaller and tax compliance costs increase less than proportionally with firm size. Micro firms with fewer than 10 employees faced tax compliance costs of nearly EUR 15 000 in the European Union in 2019 – about half the amount incurred by large firms with over 250 employees (European Commission et al., 2022[104]).55 Since firms in regions with no urban centres or small cities are, on average, smaller than firms in regions with large cities (Annex Figure 1.C.2), they are likely to be disproportionately affected by high compliance costs associated with complex tax procedures. Second, firms in less urban regions are more likely to be active in low-skill sectors, which tend to have lower profit margins. The employment share in business sectors in regions with no urban centres or small cities is 8%, almost half the share in regions with big cities. Third, regions with no urban centres or small cities have fewer people working in business services, which can decrease access to advisory services that could help with tax compliance and raise the cost of accessing those services (Annex Figure 1.C.2).
Share of firms that find tax administration a severe obstacle and average firm size (left panel) and employment shares in different sectors (right panel, %)
Note: Obstacle data based on World Bank Enterprise Survey data for 227 TL2 regions from AUT, BEL, BGR, CHL (2010), COL (2017), CRI (2010), CZE (2009), DEU, DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, IRL, ISR (2013), ITA, LTU, LUX, LVA, MEX (2010), NLD, POL, PRT, ROU, SVK, SVN, SWE, TUR. Figures refer to the period 2018-21, unless stated otherwise in brackets. Data on employment shares refer to 2019 or latest available year and include an additional 120 TL2 regions from AUS, CAN, CHL, COL, GBR, ISL, KOR, NOR, NZL, SWE, TUR, USA.
Source: OECD calculations based on World Bank Enterprise Surveys (World Bank, 2024[23]) and the OECD Regional Database (OECD, n.d.[24]).
Digitalisation can decrease compliance costs significantly. Digitalisation holds the key to a “compliance by design” system, where multiple connected systems (taxation, e-invoicing, e-banking) communicate with each other and collect information on behalf of the business so that the information in tax forms is up to date and pre-filled (OECD, 2022[110]).
The following best practices were extracted from the OECD Best Practice Principles for One-Stop-Shops (OECD, 2020[42])
One-stop shops should form part of broader administrative simplification strategies
One-stop shops should be user-centred and based on life events
Political commitment
Ensure strong and long-term political support.
Establish continuous communication between the political and administrative levels on one-stop shop development, implementation, and improvement.
Leadership
Managers need to be committed to the objectives of the one-stop shop and have the ability to be flexible if goals change.
Make realistic plans.
Ensure that good project management practices are followed.
Ensure that one-stop shops have appropriate staffing and resources.
Legal framework
Make necessary adjustments to the legal framework to ensure the co-operation with other agencies and so that one-stop shops can maximise their potential net benefit to society.
Co-operation and co-ordination
Entities responsible for planning one-stop shops need to have strong communication and feedback channels with those responsible for implementation.
Focus on building strong relationships and permanent communication channels between all the participating agencies and other stakeholders.
Role clarity
Set clear objectives and expectations for what one-stop shops can achieve.
Focus the design and structure of one-stop shops on user needs and requirements, relying on focus groups, surveys, and pilots to identify potential users’ needs and expectations.
Governance
Design a governance structure for one-stop shops where all agencies participate at an executive level and high-level political commitment can be obtained.
Develop governance mechanisms that allow operative decisions to be taken by a single organism leading a one-stop shop.
Public consultation
Undertake public consultation to ascertain whether one-stop shops are the best solution from the users’ perspective.
Plan and execute a pilot phase to test the services before they go live, ensuring that they meet users’ expectations.
Follow a phased approach for the implementation of one-stop shops, ensuring that lessons from one phase are taken into consideration for the implementation of following phases.
Communication and technological considerations
Utilise communication methods that will be of most benefit to users whilst also taking into account potential accessibility issues.
Where information and/or assistance is provided via multiple channels, customise content so as to best assist users.
Human capital
Allocate sufficient resources to change management, and design tailor-made programmes for training one-stop shop staff.
Focus training not only on technical competences, but also on interpersonal and social skills.
Monitoring and evaluation
Establish quantitative and qualitative indicators and evaluation methods to test the success and quality of the service provided to users.
Implement continuous improvement processes.
Ensure that significant changes to one-stop shops are subject to both appropriate impact assessment and public consultation processes prior to their commencement.
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← 1. In Europe, TL2 regions are largely consistent with the Eurostat European Union Nomenclature of territorial units for statistics (NUTS) classification at the NUTS2 level, except for Belgium, France, and Germany, where it corresponds to the NUTS1 level. For more details about the OECD Territorial Classification, see https://www.oecd.org/regional/regional-statistics/territorial-grid.pdf.
← 2. The obstacle data comes from the World Bank Enterprise Survey, a firm-level survey focused on the business environment and is stratified to be representative at the region, industry, and firm size levels. The survey asks firms whether certain aspects of the business environment are obstacles to their current operations. The list of possible answers is “no obstacle,” “minor obstacle”, “moderate obstacle”, “major obstacle”, and “very severe obstacle”. The analysis throughout this chapter refers to severe obstacles, i.e. those defined by firms as either major or very severe.
← 3. The study covered 11 key government regulations: a) payroll remittances, b) record of employment, c) t4 summary / individual t4s, d) workers' compensation remittances, e) workers' compensation claims, f) federal/provincial business income tax filing, g) federal/provincial sales taxes, h) corporate tax instalments, i) corporate registration, j) mandatory Statistics Canada surveys, k) municipal operating licences and permits, l) provincial operating licences and permits, m) other federal, provincial and municipal regulations.
← 4. Increasing the number of laws was also found to worsen the incentives to do business. A Spanish study found that increasing the number of laws by 1% was associated with a decrease in the total number of firms of 0.05% between the period 1998 and 2018 (Mora-Sanguinetti and Pérez-Valls, 2020[122]).
← 5. A negative example of a tax set at the national level that hindered coordination and harmonisation was the salt tax in pre-revolutionary France. The tax varied widely across regions and could increase the price of salt up to thirty-fold in a small geographic area, e.g. between Brittany and Maine, encouraging widespread contraband and requiring extensive policing (Huvet-Martinet, 1977[118]).
← 6. Another example is sectoral regulation. High value-added activities, such as financial and business services, are typically located in urban and high-income regions, which could make those regions more sensitive to changes in financial regulation. The same OECD study found that regulation in financial intermediation and business services hurt high-productivity regions more than low-productivity ones (D’Costa, Garcilazo and Oliveira Martins, 2013[7]).
← 7. Other examples of requirements include (i) a land use viability certificate, (ii) permits related to construction, (iii) standard licensing (water, electricity, sanitation, ventilation, first aid, fire safety, soundproofing, accessibility), (iv) health and safety certification and signage licences, and (v) activity licences, which authorise a specific commercial activity, i.e. music/events licence, outdoor service licence, alcohol licence, food safety certifications, food safety training for employees and more.
← 8. In some cases, licences are also awarded at the national level. In Türkiye, all businesses require a form of licensing, while in Austria only limited liability companies (LLCs) need one. Certain business entities require a licence depending on the industrial sector, e.g. public broadcasting licences in most countries, Belgian public limited companies in gambling or pharmacy LLCs in Germany. In the United Kingdom and Denmark, there are no standard requirements (DLA Piper, n.d.[111]). Data from DLA Piper Intelligence. Country evidence valid as of the following dates: Austria, 29 June 2022; Belgium, 18 May 2023; Czechia, 27 June 2022; Denmark, 22 May 2023; Germany, 22 May 2023; Türkiye, 31 May 2023; United Kingdom, 31 May 2023.
← 9. Source: 168 TL2 regions from AUT, BEL, BGR, CZE (2009), DNK, ESP, EST, FIN, FRA, GRC, HRV, HUN, ITA, LTU, LUX, LVA, MEX (2010), NLD, PLN, PRT, ROU, SVK, SVN, SWE. Figures refer to the period 2018-2021, unless stated otherwise in parentheses.
← 10. The 40 000 new jobs were equivalent to 0.2% of all informal employees estimated in 2000 in the country (Kaplan, Piedra and Seira, 2011[17]).
← 11. For restaurants, the length of the application form dropped by a factor of five, and the time to start a restaurant dropped by a third. Prior to the reform, half of new restaurants took more than two months to complete the opening process and the size of an application form for a restaurant licence was 17 pages (City of Chicago Office of the Mayor, 2012[18]; Ash Center for Democratic Governance and Innovation, 2015[19]).
← 12. A total of 685 industries were deemed low-risk and eligible for SARE, which led service and retail sectors to be overly represented in the initiative. Other eligible sectors included “production of metal and wooden furniture, freezing of fruits and vegetables, production of clothes and textiles, drugstores and small supermarkets, video stores and DVD rentals, real estate services etc.” (Kaplan, Piedra and Seira, 2011[17]).
← 14. The federal body in charge of the programme was the Federal Commission of Regulatory Improvement (COFEMER), which was also overseeing other tools for regulatory improvements such as Regulatory Impact Assessments (Kaplan, Piedra and Seira, 2011[17]).
← 15. Thus, zoning and building permits are combined into a single project permit, and previously separate environmental permits are combined into a Unified Environmental Statement (Dentons, 2024[26]).
← 16. The ecosystem consists of a builder’s portal, used for communication, a documentation register and a register of construction procedures (Dentons, 2024[26]).
← 17. A study of 100 high-quality office buildings in Hong Kong for example suggests that, compared with single-use office space, tenants are willing to pay higher rents for mixed-used buildings – a direct consequence of zoning policy – where a decrease in rent is associated with an increase in distance from hotels and retailers (Liusman et al., 2017[112]).
← 18. The rules combined a limit on the number of residents per pharmacy, a distance requirement and a rule ensuring entry would have no adverse effects on incumbents (OECD, 2017[11]; OECD, 2010[30]).
← 19. The cost was estimated for the rigorous implementation of the Town Centre First policy in 1996. (Cheshire, Hilber and Kaplanis, 2015[31])
← 20. The introduction of a similar law in France in 1973, known as the Royer Law, was also associated with higher prices and more market concentration, which was consistent with less stringent competition (Bertrand and Kramarz, 2002[115]).
← 21. The correlation stays positive and statistically significant even after controlling for factors constant at the country level.
← 22. Single-use zoning only allows one specified use of land. This prevents shops from being built in residential areas or dwellings to be built in commercial areas (OECD, 2021[9]).
← 23. Flexible zoning could also provide environmental advantages, e.g. shortening shopping trips by allowing basic stores such as groceries to be built in residential areas.
← 24. For more information about this project, see https://smartcity.wien.gv.at/en/brise/.
← 25. The reform involved the creation of “standardised pre‐approved articles of association, [...] lists of pre‐defined firm names” and removed some outdated formalities, such as “the registration of company books and the legal obligation to provide public deeds” (Branstetter et al., 2013[43]). By the end of 2009, half of counties had one-stop-shops where the accelerated registration procedure could take place.
← 26. The effects of the reform were smaller than in Empresa na Hora in Portugal and SARE in Mexico, possibly reflecting decreasing returns and a better starting point than in the other two cases. Most of the effects arose from sole proprietorships, especially in services and construction. As the authors point out, this is to be expected, as manufacturing firms typically require larger upfront investments and longer planning times, so it was unlikely that they would appear in the short-term effects (Amici et al., 2016[44]).
← 28. The dimensions are: digital by design, data-driven public sector, government as a platform, open by default, user-driven and proactiveness. For more details, see OECD (2024[45]).
← 29. Mandates should be technology-neutral, so that they can ensure good levels of service also in the future, when technologies may change (OECD, 2019[46]).
← 30. The applicability of tax incentives needs to take the overall funding and financing structure into account, as well as the tax systems and specific challenges in different countries and regions, as incentives could run counter to the objective of promoting local fiscal self-sustainability.
← 31. The broader list of advantages is listed by capability and service. Administrative capabilities include management of informatics, support for electronic payments, and of users, logs, accessibility, monitoring, template creation, electronic payment support, document storage, and master data as well as an e-learning framework, systems and operating systems management, and external/internal data communication and integration. Services provided include local finance management system, local tax management system, property cadastre access, industrial and commercial management system, inheritance registration system, online form management tools, a local government e-administration “single point of contact” portal and a municipality web portal service.
← 32. The technology, known as X-Road, is a data exchange platform aimed at enhancing the exchange of information across government institutions in a safe and efficient manner. For more information about the service, see https://x-road.global/xroad-case-studies-library/2024/10/21/how-x-road-gets-a-taste-of-the-big-city-life-in-buenos-aires-argentina.
← 33. Programmed reviews can also be embedded more implicitly, as sunsetting rules that lapse automatically after a period and thus need to be re-approved to stay active. They can also take place within a shorter timeframe, for instance in the case of emergency adoption where regulatory assessment might not have been complete (OECD, 2020[59]).
← 34. A 2022 report of the Commerce Commission in New Zealand identified long-running covenants or those that restrict the use of the land by a competitor of the original covenantor or by specific industries as particularly harming competition. The report stated that imposing assessment criteria and penalties to covenants would limit their anticompetitive effects. Penalties could be issued when a company breaches thresholds pertaining to (i) the number of products and services affected by a covenant in the context of other suppliers who provide a substitute and their geographic location, (ii), the duration and scope of a covenant that is potentially anticompetitive when implemented in concert with local zoning or regulatory restrictions, or existing competition is already limited. The latter influences compliance with heavy penalties. For individuals, the maximum penalty is NZD 500,000 while corporations are liable for the greater of either NZD 10 million, ‘three times the commercial gain’ or “10% of turnover” (Commerce Commission New Zealand, 2022[60]).
← 35. The proposed Bill 142, Better for Consumers, Better for Businesses Act, 2023, intends to replace the Consumer Protection Act, 2002 (Legislative Assembly of Ontario, 2023[114]). The bill aimed to clarify the use of (i) commercial prohibition clauses, (ii), renewal and extension of contracts (iii) what is deemed as unfair practices, while (iv), increasing penalties for contraventions.
← 36. The organisation was set up using investments from both public (municipal) and private sources, and its Board of Directors includes representative from both the private and the public sectors.
← 37. For the ensemble of countries, the correlation coefficient is 0.56 and it drops only slightly, to 0.5, when removing the outlier Colombia.
← 38. The data was based on a survey done by phone, where government employees posed as businesses needing information that should have been available on the one-stop shop. (Giacomelli and Tonello, 2018[129]).
← 39. One study investigated the staggered introduction of e-procurement in India and Indonesia between 2000 and 2009, discovering mixed results. In both countries, the introduction of public procurement was consistent with increased competition, as it increased the probability that the winning bid came from outside the region of the call for tenders. The evidence on prices falling due to e-procurement were not consistent and pointed at most to small gains of a few percent. However, e-procurement did lead to significant improvements in the quality of the bids. In Indonesia, there was a fourfold increase in the share of projects being completed on time (5% for conventional procurement, 20% for e-procurement). In India, audit data on the quality of the roads built suggested a 12% improvement in quality attributable to e-procurement (Lewis-Faupel et al., 2014[125]).
← 40. This would result from decreasing the number of contracts with a single bidder, which tend to be 7% more expensive than other contracts. One extra information item decreases single bidding, which the authors argue is a measure of corruption in public procurement, by 0.5 to 1.2 percentage points. Increasing by 5 information items could prompt savings of 0.18% to 0.43% in the price of contracts (Bauhr et al., 2019[75]). Since the average procurement announcement had around 60 items, improving by 6 items would be equivalent to an improvement of 10%, or 0.22%-0.52% of savings.
← 41. These findings confirm past research which documented a negative effect of corruption on innovation, across countries as well as across regions of the same country. One study assembled country-level data in a panel covering 64 countries between 1996 and 2002 and found that improving the control of corruption was associated with higher total entrepreneurship activity as well as more innovation, as measured by patents (Anokhin and Schulze, 2009[121]). Similar negative effects of corruption on innovation were found at the subnational level for the same country. One study focused on Italian regions, finding that “control of corruption, regulatory quality and voice and accountability” is positively related to organizational innovation, while government effectiveness and regulatory quality improve product and process innovation (Barra and Ruggiero, 2022[120]). Another focused on the United States, finding that firms headquartered in states with more convictions for public corruption tended to have fewer patents, as well as lower-quality patents as measured by the number of citations. Moving from more corrupt states, defined as those at the 75th percentile of the corruption distribution, to the less corrupt states in the 25th percentile would bring an increase of 17% in the number of patents and an increase of 15% in their citations, which is interpreted as better quality of patents. The authors created indicators correlated with local political corruption in the United States using convictions for public corruption between 1978 and 2006, and linked them to patent data dating between 1926 and 2010 (Ellis, Smith and White, 2019[126]).
← 42. At the country level, a one-position worsening in the level of corruption in the Transparency International Corruption Perceptions Index (TI CPI) was associated with a decrease in the share of start-up entrepreneurs in the population by around 1.5 percentage points (Avnimelech, Zelekha and Sharabi, 2014[128]). A similar study, which compiled data on more than 70 000 individuals and 53 countries from the 2009 Global Entrepreneurship Survey, found that a one standard deviation increase in the extent of corruption of the Transparency International measure decreased an individual’s probability of having entrepreneurial intentions by one percentage point (Costa and Mainardes, 2015[123]).
← 43. The authors used a measure of corruption in Brazilian municipalities drawn from random audits in 2003, previously developed by Ferraz and Finan (2008[124]), while the data on business establishments referred to 2003-2012 (Bologna and Ross, 2015[77]).
← 44. Churn, i.e. the sum of firm birth and death rates, can be seen as a proxy for the uncertainty of the business environment in a region.
← 45. Examples of petty corruption can also be found in the context of OECD countries. For instance, in a study of 100 cases of corruption successfully prosecuted in New York City prior to 2009, almost half involved inspectors, a fifth involved supervisors and managers and less than a tenth involved politicians (GRAYCAR and VILLA, 2011[116]). Similarly, in an OECD study of 427 foreign bribery cases, almost half of the cases involved public officials from countries with high and very high levels of development, according to the UN Human Development Index (OECD, 2014[78]).
← 46. In technical terms, controlling for churn in the regressions that link unemployment and GFCF per capita with corruption renders the corruption coefficient small and statistically insignificant, suggesting churn and uncertainty are a mechanism through which corruption operates on these variables.
← 47. Similarly, a study by Torgler et al. (2008[119]) used Turkish and American survey data and found persistent negative relationships between tax morale on the one hand, and corruption and lack of trust in public officials on the other. Corruption can also raise doubts regarding procedural fairness, which has been shown to hurt trust in institutions and decrease the willingness to voluntarily comply with political and administrative decisions (GRIMES, 2006[127]).
← 48. These findings confirm past research which documented a negative effect of corruption on innovation, across countries as well as across regions of the same country. One study assembled country-level data in a panel covering 64 countries between 1996 and 2002 and found that improving the control of corruption was associated with higher total entrepreneurship activity as well as more innovation, as measured by patents (Anokhin and Schulze, 2009[121]). Similar negative effects of corruption on innovation were found at the subnational level for the same country. One study focused on Italian regions, finding that “control of corruption, regulatory quality and voice and accountability” is positively related to organizational innovation, while government effectiveness and regulatory quality improve product and process innovation (Barra and Ruggiero, 2022[120]). Another focused on the United States, finding that firms headquartered in states with more convictions for public corruption tended to have fewer patents, as well as lower-quality patents as measured by the number of citations. Moving from more corrupt states, defined as those at the 75th percentile of the corruption distribution, to the less corrupt states in the 25th percentile would bring an increase of 17% in the number of patents and an increase of 15% in their citations, which is interpreted as better quality of patents. The authors created indicators correlated with local political corruption in the United States using convictions for public corruption between 1978 and 2006, and linked them to patent data dating between 1926 and 2010 (Ellis, Smith and White, 2019[126]).
← 49. There are also some countries where large firms feel more impeded by corruption than smaller firms. Of these, only Mexico and Greece have differences above 4 percentage points, while the difference in Italy, Czechia and Germany is of 3 percentage points or less.
← 50. Some costs are difficult to categorise. Environmental compliance costs, for example, can fall on firms before and/or after the acquisition of a land permit while firms may be required to assume costs indirectly – through the replacement of disrupted natural habitats – or directly, through in-lieu exactions.
← 51. In Germany, for example, the cost of a building permit in Saxony-Anhalt is 1% of the estimated construction value, while in Brandenburg it is 40% higher (Pedro, Meijer and Visscher, 2011[113]).
← 52. Another example is Spain, where all regions abide by national regulations, but regions can vary in the stringency with which they are applied. Some measures pertain to coverage or specific ecological considerations – the Balearic Islands have coverage laws stipulating compensation requirements for both protected and non-protected landscapes, while Extremadura’s regional government stipulates requirements to compensate for the prevention of bird nesting on power lines (Villarroya, Persson and Puig, 2014[117]).
← 53. Some of the restrictions on land use might be the result of local preference, e.g. real estate owners aiming to maximise the value of their property by limiting supply.
← 54. There were three important reforms to take into account. In 1999 strict fiscal rules were imposed on all municipal governments, limiting their finances. In 2001, the fiscal rules were relaxed for small municipalities below 5000. In 2003, municipalities were allowed to use revenues from building permits to finance current expenditures and not only capital expenses, increasing their incentive to use permits as a source of revenue to balance the budget.
← 55. Compliance costs with property and local taxes were estimated at EUR 2 000 for a micro firms and EUR 5 000 for a firm with more than 250 employees (European Commission et al., 2022[104]).