Bureaucracy: Brake or Flywheel for Growth?

Many of us can share stories about the bureaucratic nightmares we’ve faced in our lives. Some of us are fortunate enough to have encountered situations where government agencies were both helpful and efficient in their tasks.

Bureaucracy can act as a brake on a country’s ability to attract investment and talent. It can also become a dead weight, operating as a constant trickle of sand in the wheels of the country’s economic engine. Recent research has attempted to measure the effects of bureaucracy and legislative activity on economic growth, offering an interesting perspective that illuminates its role in economic development.

The real challenge isn’t whether we need bureaucracy, but what kind of bureaucracy we should create. Three recent studies shed light on the paradox of bureaucracy serving both good and bad purposes, sometimes acting as a catalyst for fostering prosperity, and other times, functioning as the main obstacle to innovation and investment.

The Italian labyrinth

Laws can decrease uncertainty by setting clear rules in areas that were previously unregulated, or they can do the opposite. Opaque laws may increase uncertainty and lead to more litigation, raising the costs of doing business. This is the tragedy of Italy’s legislative maze, as documented in Giommoni et al. (2025). Over the past three decades, Italian legislation has become longer, denser, and more difficult to understand (see figure below). Emergency decrees produce norms filled with cross-references and nested clauses that even legal experts struggle to decode. The result: a country where 85% of legislative sentences exceed 25 words, and where, on average, every 100 words contain four references to other laws.

Figure 1. Legislative quality in Italy (Giommoni et al., 2025)

The authors of this study aim to measure the economic cost of this legislative moloch using a clever empirical strategy. First, they instruct artificial intelligence to develop a linguistic measure of legislative clarity across more than 75,000 laws, drawing on criteria from legal drafting manuals such as sentence length, the frequency of gerunds, modal verbs, and cross-references. Second, they connect this measure to legal uncertainty: in the Italian legal system, sentences can be appealed, and after the appeal, parties can also request the Supreme Court (Corte di Cassazione) to have a further say, but only in matters of legal interpretation, not regarding the actual facts of the case. Leveraging this, the researchers proxy uncertainty with the likelihood that the Supreme Court of Cassation overturns lower court decisions. Third, they exploit a 2012 judicial reform that unexpectedly reallocated court jurisdictions, primarily through merging smaller courts with larger ones. These mergers meant that firms in certain regions changed courts, enabling researchers to distinguish the effect of the court system from that of legislation and thus estimate the causal effect of legal uncertainty on economic outcomes. 

The results are striking. A one standard deviation increase in legal uncertainty reduces firms’ annual output growth by 1.2% and investment by 1.3%. Startups tend to be smaller, incumbents are more likely to go bankrupt, and the long-term effects only worsen. According to their calculations, if Italy’s laws were written with the same clarity as the Italian Constitution, today’s GDP would be nearly 5 percent higher—about €110 billion annually.

More laws, more growth?

It is not always true that the volume of law production hinders growth. Ash et al. (2025) examined legislative output in the US between 1965 and 2012 and found that economic legislation frequently promoted growth. By carefully coding statute texts across all 50 states and comparing them with economic output data, the team discovered that new economic laws decreased uncertainty for firms and encouraged investment. 

The main focus is on the types of laws enacted. Social legislation had little measurable impact on GDP, but economic laws—such as those defining taxes, contracts, or business rights—played a vital role in clarifying the “rules of the game.” Growth was strongest in states with previously limited or incomplete legal frameworks and in sectors where firms depend heavily on long-term, relationship-specific investments. In such contexts, ambiguity is costly: legislation creates ambiguity and uncertainty when laws are unclear, as in Italy, but also results from legislative gaps. In the US, a clear legal foundation functioned like an insurance policy, enabling entrepreneurs to take risks, knowing contracts could be enforced and disputes resolved predictably.

Populism and the dismantling of expertise

A third study adds an extra edge to this issue. Bellodi et al. (2024) examined bureaucracy itself, rather than legislative production. Bureaucracy is not just statutes on paper; it also involves flesh-and-blood officials who interpret and implement them. In recent years, much of the Western world has seen a surge of so-called populist parties. Their rhetoric has been anti-establishment, advocating disintermediation between political leaders and “the people,” and rejecting independent experts like judges, scientists, central bankers, and independent authorities. These politicians often promised simple, dramatic solutions to complex problems. Once elected, they faced the choice to honor their (difficult) promises or to renege on them. 

Using data from over 8,000 Italian municipalities across two decades, the authors analyzed close elections—where populists narrowly won or lost—to determine the causal effects of electing a “populist” mayor.

The findings are sobering. Electing a populist mayor results in higher cost overruns in procurement contracts, weaker debt repayment discipline, and, crucially, a sharp decline in bureaucratic quality. Skilled officials leave or are pushed out, replaced by less experienced staff. Turnover increases, institutional memory diminishes, and the workings of local government become strained. The damage isn’t an immediate GDP drop but a deterioration of the administrative infrastructure that underpins long-term economic performance. Bureaucracy, deprived of its most skilled element, delivers worse policies and reduces the ability to implement public policies for future mayors. 

Populist battles against “the elites” often result in emptying the bureaucracy of people who are not like-minded, thereby weakening the state’s ability to deliver public goods effectively. The lesson is that preserving bureaucratic competence is as crucial for growth as protecting property rights.

Conclusions

Taken together, these three studies reveal a paradox: bureaucracy is both indispensable and dangerous. Well-crafted laws and capable institutions minimize uncertainty, promote fairness, and help markets to function. But poorly drafted laws and politically weakened bureaucracies create confusion, deter investment, and hinder growth.

Quantity alone is meaningless. What matters is clarity, coherence, and competence.

So, what can policymakers do? Investing in legislative quality and bureaucratic expertise is very important. This is particularly challenging for those parties whose agendas may include fighting against bureaucracy itself, and who have fewer of their members coming from those ranks. These lessons resonate beyond the United States and Italy. In the European Union, Canada, and other federations, the balance between central and regional rules remains contentious. In emerging economies, the challenge is even greater: how to build a bureaucracy from scratch without falling into paralysis or populist dismantling. The empirical message is the same: bureaucracy can be a driver for growth, but only if it is carefully designed.

References:

• Ash, E., Morelli, M. and Vannoni, M., 2025. More laws, more growth? Evidence from US states. Journal of Political Economy, 133(7), pp.000-000.

• Bellodi, L., Morelli, M., and Vannoni, M., 2024. A costly commitment: Populism, economic performance, and the quality of bureaucracy. American Journal of Political Science, 68(1), pp.193-209.

• Giommoni, T., Guiso, L., Michelacci, C. and Morelli, M., 2025. The Economic Costs of Ambiguous Laws.