16/18  Regulatory framework I would now like to focus on three regulatory challenges with the potential to distort our country’s current regulatory framework: the enormous disparity of regulations at the municipal and regional levels; regulations that depend on firm-size; and regulations that artificially distort the costs of different-sized firms. Firstly, the disparity of regulations at the municipal and regional levels. The OECD published a report in 2015 showing the enormous dispersion of procedures needed in 19 Spanish cities in order, for example, to start a company, to apply for a building permit or to initiate a legal claim. In such a setting, the formalities needed to undertake investment projects proliferate, which hampers building up the business in alternative locations. This may be particularly relevant for certain sectors, such as professional, scientific and technical activities, training and wholesale and retail trade. To correct these distortions, the Law to Ensure Market Unity was approved. This legislation only allows limits on an operator’s freedom of establishment and movement when this is warranted by pressing reasons that are proportionate and in the general interest. Moreover, the legislation places at operators’ disposal claim mechanisms under administrative law that are swifter, in principle, than the previous ordinary procedures. Benefits have clearly arisen from the defence mechanisms for agents fomented by this Law. And thanks to the sectoral conferences being held as a result of the legislation, coordination between regions and municipalities is increasing so as to identify and, as far as possible, adopt best practices at the sectoral level.

Secondly, there are specific (tax or employment, for example) regulations in place intended to assist small and medium-sized enterprises, but which may actually discourage their growth. Indeed, there is evidence of an artificially high concentration of firms at sizes immediately prior to certain regulatory thresholds. That would denote the need to adapt existing regulations, so as to avoid these deterrents to business growth.9 Finally, while the foregoing types of regulation discourage company growth, there are other types of rules that may occasionally prevent such growth. This is because such rules artificially distort firms’ costs, benefiting those already in place, and which are generally bigger, to the detriment of new firms, which are usually smaller. The specific nature of these distortions is very varied. For instance, the legislation on public procurement requires accreditation by tendering firms of a degree of solvency that is usually related to their turnover or their net worth and to public works executed in recent years. Start-ups have greater difficulty winning any tenders, irrespective of their productivity. But it is worth mentioning that the new public procurement legislation approved in 2018 made it possible for SMEs to tender by eliminating the accreditation of previous public works and reducing the number of years needed to demonstrate technical solvency. 9  See Almunia, M. and D. López-Rodríguez (2018): “Under the radar: The effects of monitoring firms on tax compliance”, American Economic Journal: Economic Policy, 10 (1), pp. 1-38.