Cutting Red Tape To Spur Economic Growth
The economics literature is clear on the implications of regulations on economic growth. Those jurisdictions that allow regulations to continually accumulate can expect to experience slower growth as a result. Conversely, cutting red tape should offer better economic performance.
As a test of this theory, how do these two groups of states the reform states and the status quo states compare in terms of economic growth? Over the period covered by State RegData, the reform states did substantially better than the status quo states. Reform states experienced average annual growth of 2.09%, whereas status quo states grew at 1.87% on average. For growth rates, a difference of 0.22 percentage points is significant. If that difference were maintained for a 20-year period, the faster-growing group would grow 5.25% more than the slower group essentially gaining nearly three entire years of economic growth.
Although this quick analysis is by no means dispositive, it certainly suggests that the findings in existing research on the effects of regulatory accumulation and regulatory budgeting are being repeated in the states that have begun cutting red tape. Because British Columbia gained a full percentage point of economic growth only after cutting nearly 40% of its regulations, it seems reasonable to predict that further cutting of red tape in the reform states should further increase the difference in growth rates between them and the status quo states. Therefore, U.S. states that haven t yet implemented anti-red tape initiatives should consider doing so; otherwise, they could lose out to their less-regulated rivals.
Patrick McLaughlin.