Red Tape in OECD
countries: Challenges
and Responses
Cesar Cordova-Novion
Deputy Head
Regulatory Reform Programme
Beijing, China
September 2001
What is red tape?
Economic burdens imposed by Regulations
Public Sector
(developing, administrating
and enforcing)
Private Sector
(complying with regulations)
Businesses
Administrative
Compliance
Costs
Internal
External
Capital
costs
Private Households
Efficiency or Indirect
costs
Formalities are an integral part
of modern economies




Formalities are the main link between authorities
and businesses and citizens
Governments require standard information to
implement regulations and provide public services
and products
As policies become more targeted to specific
issues and populations, the need for information
increases
But many regulations abuse of ex ante “paper”
controls (‘command and controls’) rather than
controlling actual compliance and change of
behaviors (performance-oriented)
Main impacts of red tape

On businesses

Reduces economic efficiency
 impose unnecessary costs (time & money)
divert resources away from productive investments
hamper entry into markets
Cumulative effects



Impedes innovation and business
responsiveness
Discourages entrepreneurship
On government



Hinders achieving policy goals
Encourages informality and growth of the grey
sector
Fosters corruption and discretionary abuses
The cost of red tape (1)
Represents around 4% of the Business Sector GDP
en
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ed
ain
Sp
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l
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Po
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y
or
N
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al
an
d
N
ew
Ic
el
an
d
d
Fi
nl
an
iu
m
Be
lg
us
t ri
a
A
A
us
t ra
li a
8%
7%
6%
5%
4%
3%
2%
1%
0%
% of Business GDP
% of GDP
OECD (2001) Businesses' Views on Red Tape Administrative and Regulatory Burdens
on Small and Medium-sized Enterprises, Paris
The cost of red tape (2)

On average, each SME spent US$27 500 per
year complying with tax, employment, and
environmental formalities.




Total costs split into tax (46%),employment (35%) and
environmental (19%) formalities
Though the latter is growing rapidly.
An average cost of US$4 100 per employee, or
around 4% of the annual turnover of
companies.
The majority of companies (around 60%)
reported that administrative compliance costs
increased over the period 1998-1999.
A dramatic “regressive effect”
Annual administrative costs per employee by
company size, average all countries
4,500
4,000
US dollars
3,500
3,000
2,500
2,000
1,500
1,000
500
0
1-19 employees
20-49 employees
50-499 employees
Administrative simplification
Best practices
1. One-Stop Shops
2. Time-limits on administrative decision
making
3. Licences reduction programmes
4. Technological means of reducing
transaction costs
5. Special SME activities
1. One Stop Shops
Reduce search costs
 Improve awareness of requirements
 Variety of delivery mechanisms
 One-stop shops as licensing clearinghouse
 From single level access to intergovernmental co-operation


Though this raises delegation and overlap
issues
2. Time limits on administrative
decision-making
Statutory time limits enforces
accountability
 Consequences of failing time limits vary
 ‘Silence is Consent’



Change the burden of prove
But, can lead to disproportional harm from
non-conforming activities without an
enforcement and compliance upgrade
3. Licensing procedures


Rationalisation/reduction
Simplification







Information requirements
Attachments
From ex ante licensing to ex post control
Single identification number
Amalgamation of formalities
Central registry of all formalities with positive
security
Quality certification of formalities
4. Technological means to
reduce transaction costs (eformalities)
Forms on-line (“dematerialisation”)
 On-line on-way transactions
(electronic signatures)
 On-line two-way interchange (EDI)
 Security dimensions

5. Special SME initiatives
Institutional support
 Special flexibility measures (supply
model)
 Exemptions from requirements
 ‘Vouchers’ to compensate administrative
costs

Red tape reduction is a
powerful leverage for
regulatory reform
Main beneficiaries are SMEs
 Visible gains
 Early gains



Easier than complex reforms of economic
and social regulations
Linked to improvements of public
administration and bureaucracy