Juan S. Mora-Sanguinetti

Entrepreneurship and enforcement institutions: Disaggregated evidence for Spain

Entry of new firms, both in the form of entrepreneurs or corporations, fosters competition and productivity. Both the entry of firms and productivity have been low in the Spanish economy over the recent years. This paper analyzes the determinants of entry focusing on the role of the design and efficacy of enforcement institutions (the judicial system), a traditionally overlooked aspect. In order to do so, we examine disaggregated data at the local level in Spain. We find that higher judicial efficacy increases the entry rate of firms, while it has no effect on the exit rate. Crucially, that impact only occurs in the case of the entry rates of entrepreneurs, defined as self-employed, but not in the case of limited liability corporations. This finding may be explained by the fact that judicial (in)efficacy can be regarded as a fixed cost to be paid by agents that litigate. Hence, the economic activity of entrepreneurs -and specifically, their entry into the market- is expected to be more affected than that of larger firms.

Reforming the Labour Market in Spain

After steady employment growth since the 1990s, Spain has experienced the sharpest increase in unemployment among OECD countries during the crisis, amplified by structural problems of the labour market. Very high de facto severance payment of permanent contracts has resulted in a rigid dual market with adverse effects on unemployment and productivity. The collective wage bargaining system has hindered firms from adapting to macroeconomic shocks exacerbating their negative effects on the labour market. The recent labour market reform legislation is a positive step to reduce excessive protection of workers in permanent contracts, although some uncertainty remains on how courts will interpret it. It also makes it easier for firms to opt out from higher level collective agreements. The large drop-out rate from lower secondary education is an important factor explaining very high unemployment among young workers. Better access of young people to training is an effective tool to keep them out of a depressed labour market. Finally, the matching of people to jobs, notably through the public employment services, needs to be made more efficient, all the more so under currently tight fiscal constraints. Although the recent reform allows private for-profit firms to provide placement services, more needs to be done. Performance of regional public employment services should be benchmarked and incentives of unemployment benefit recipients to search for a job increased.

Litigation in Spain 2001-2010: Exploring the market for legar services

There is empirical evidence of a cross-country positive association between the number of lawyers per capita and the extent of litigation. For instance, Spain has more litigation and more lawyers per capita than most OECD countries. How should this association be interpreted? In this paper we analyse the variation in both variables across Spanish provinces during the period 2001-2010, by means of an instrumental variable approach, to shed some light on the sources of the statistical association between them. Finally, implications of the results are discussed.

Credit, Crisis and Contract Enforcement: Evidence from the Spanish Loan Market

Numerosos estudios, tanto teoricos como empiricos, han puesto de manifiesto que la calidad del marco institucional tiene efectos sobre el funcionamiento del mercado de credito. Una cuestion menos tratada por la literatura ha sido el efecto que tiene sobre el desarrollo de este mercado el diseno de los distintos procedimientos judiciales de un pais y su interaccion con el ciclo economico. Este articulo pretende cubrir ese espacio, mostrando como las diferencias provinciales en Espana en cuanto a la disponibilidad de credito y la morosidad pueden ser explicadas en parte por diferencias en la eficacia del sistema judicial, ya sea en los periodos de crecimiento sostenido (2001-2007) como en los de recesion (desde 2008). Las conclusiones indican que una mejora de la eficacia de las ejecuciones judiciales (cuando un juez obliga forzosamente al pago de una deuda) incrementa la disponibilidad de credito en Espana. Sin embargo, la eficacia de la fase declarativa del procedimiento (cuando la existencia de una deuda es verificada por un juez) no parece tener un efecto significativo sobre el credito. Una posible explicacion de esta observacion es que una proporcion importante de los impagos son estrategicos (es decir, realizados por deudores que son, en realidad, solventes). En paralelo, se observa una menor morosidad en las provincias en las que los procesos declarativos son mas eficaces. Esta ultima observacion es significativa solamente despues del inicio de la Gran Recesion de 2008 y podria estar relacionada con el incremento de los impagos no estrategicos que se produce durante las crisis economicas.

Why do spanish firms rarely use the bankruptcy system? The role of the mortgage institution

Taking advantage of a rich database of more than 1 million companies in Spain, France and the U.K., we propose and test a hypothesis to explain why Spain has one of the world’s lowest business bankruptcy rates, even during the current economic crisis and after controlling for market exit rates. This hypothesis is based on two premises, the low efficiency of the Spanish bankruptcy system relative to that of an alternative insolvency institution, the mortgage system, and the unattractiveness of the personal bankruptcy law

Employment protection legislation and labor court activity in Spain

Labor courts may introduce a significant wedge between “legal” firing costs and “effective” (post-trial) firing costs. Apart from procedural costs, there is uncertainty over judges’ rulings, in particular over the likelihood of a “fair” dismissal ultimately being ruled as “unfair”, which may increase firing costs significantly. In 2010 and 2012, reforms of Employment Protection Legislation widened the definition of fair economic dismissals in Spain. In this paper we look at Labor Court rulings on dismissals across Spanish provinces before and after the EPL reforms (2004-2014). We make this comparison taking into account a set of co-variates (local labor market conditions, characteristics of the Labor Courts, pre-trial conciliations, congestion of Labor Courts) which may determine the selection of dismissal cases ruled by Labor Courts. Our results suggest that, despite the 2010 and 2012 EPL reforms, the proportion of economic redundancies being ruled as fair by Labor Courts has not substantially increased, although it is now less negatively associated with the local unemployment rate than in the pre-reform period.

Firm Size and Judicial Efficacy: Evidence for the New Civil Procedures in Spain

The literature has found that the size of firms matters for innovation and productivity and, thus, for economic performance. It is therefore worth explaining why enterprises in Spain are small in international terms. Our findings indicate that the quality of the institutional environment plays a role. Specifically, this paper analyses the different channels through which the efficacy of Spanish courts may affect the size of the companies at the provincial level. Regarding the existing literature, this paper is innovative in several important respects. First, we disentangle the impact of judicial efficacy on average firm size by differentiating between the effect on the growth of incumbent firms (intensive margin) and the effect on entry and exit rates (extensive margin), finding clear evidence of the former but not of the latter. We do so by using a firm-level database of more than half a million companies and real data (not estimates) on judicial efficacy at the local level. Second, this paper is the first to analyse the relationship between firm size and the effectiveness of justice after the reform of the civil procedures in 2000. Finally, and most significantly, it is the first paper in the literature to analyse the specific impact of the various civil procedures, both at the declaratory and the executory stage. In general, we find that judicial efficacy has a positive effect on firm size, but it critically depends on the type of the procedure, something that the previous literature has overlooked. More specifically, judicial efficacy matters at the declaratory stage (e.g. when a debt is declared and recognised by a judge), while it does not have a significant impact on size at the executory stage.

Is Judicial Inefficiency Increasing the House Property Market Weight in Spain? Evidence at the Local Level

Compared with the rest of the European countries the weight of the house property market in Spain is very high, which is consistent with the weakness of the tenancy market. In this context, it has often been argued that an inefficient judicial system, implying a cumbersome procedure to evict a non-paying tenant or simply needing a long period to execute a decision, may be an important determinant of the tenancy market weakness, as it constrains the effective supply by reducing the profitability of landlords. This research has studied this effect econometrically using a panel data approach and exploiting the differences in the judicial efficiency that exists among the Spanish provinces. After controlling for several other factors, this study concludes that the degree of inefficiency of the judicial system has a positive, although minor, impact on the differences in the property share among provinces in Spain.