DP15629 More Laws, More Growth? Evidence from U.S. States
This paper analyzes the conditions under which more detailed legislation contributes to economic growth. In the context of U.S. states, we apply natural language processing tools to measure legislative flows for the years 1965-2012. We implement a novel shift-share design for text data, where the instrument for legislation is leave-one-out legal-topic flows interacted with pre-treatment legal topic shares. We find that at the margin, higher legislative detail causes more economic growth. Motivated by an incomplete-contracts model of legislative detail,
we test and find that the effect is driven by contingent clauses, that the effect is concave in the pre-existing level of detail, and that the effect size is increasing with economic policy uncertainty.
