REGULATION OF SHORT-TERM HOUSING RENTALS IN SPAIN 699 with the task of guaranteeing and protecting the exercise of free enterprise and productivity in accordance with the demands of the economy in general 25. Free competition lies at the roots of free enterprise. Individuals and companies cannot adopt free decisions in markets if competition is distorted. Free competition is also a prerequisite for well-functioning markets, i.e. markets that provide the best attainable outcomes for consumers and maximise social welfare. Therefore, a first goal for regulation is to create an institutional, legal and economic framework where individuals and companies can freely compete. However, even competitive markets do not always provide socially desirable outcomes. Markets may have economic failures, such as externalities, information problems or natural market power, all of which do not lead to optimal outcomes. Further, there can be legitimate public objectives that markets alone cannot achieve. Hence, a second goal for regulation is to redress market failures and to make markets consistent with legitimate public objectives. However, regulatory intervention also has failures. Gathering information to take optimal decisions may be too difficult or too costly and regulators may have different goals to maximising social welfare. Even well-intentioned decisions may cause harm if they don’t consider all possible downsides. Therefore, regulatory intervention itself should be subject to rules that ensure its consistency with social welfare and objectives. The concept “efficient economic regulation” refers to regulatory provisions that aim to achieve legitimate social objectives while, at the same time, avoiding unnecessary restrictions to free enterprise and market economy. In order to be economically efficient, regulation must not introduce restrictions to free competition unless they are indispensable in protecting a legitimate public goal, and must not go beyond what is necessary. Moreover, efficient economic regulation is embedded in the Spanish legal framework, not only in regards to services sectors – where the principles of the Services Directive26 make it mandatory –, but in all other economic sectors as well. Pursuant to Law 20/2013, of 9 December, on Market Unity, all restrictions to economic activity in Spain must be necessary to protect an overriding reason in the public interest27 and be 25 Spanish Constitution, Article 38: “Free enterprise is recognised within the framework of a market economy. The public authorities shall guarantee and protect its exercise and the safeguarding of productivity in accordance with the demands of the economy in general and, as the case may be, of its planning”. 26 Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market. 27 Article 3.11 of Law 17/2009, of 23 November, lists all accepted overriding reasons in the public interest.
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