Title: Regulation and Taxation in a Model of Growth (with Luis Felipe Saenz)

Abstract: In this paper we construct a growth model with increasing returns stemming from product variety to explore the different effects of regulations and taxes on economic activity. Regulations primarily raise fixed costs, while taxes increase variable costs. This is key because fixed costs determine the extent of specialization, which in our model plays an important part in human capital accumulation. Growth, then, is more severely impacted by regulations than by taxes. Empirical tests using panel data across countries provides support for the theory.