State Supply-Side Economics: Measuring Regulatory Burden

• In Event: State Executives

Abstract

Supply-side economics is a term typically associated with the national government in the United States, but states can also adopt this strategy for promoting economic growth. The two primary policy prescriptions are low marginal income tax rates and light regulations, and governors in some states such as Texas often brag about having a low tax, low regulation environment. Various scholars have studied the effects of state and local taxes on economic growth (most of them don’t find much effect), but few studies seek to determine the overall effect of state and local regulations. A primary barrier to this analysis is the lack of a good measure of the regulatory burden imposed by state and local governments.

I will analyze and contrast several indices of state regulatory burden developed by interest groups and think tanks. These include the “Freedom Index” developed by the Cato Institute, the “Economic Competitiveness Index” developed by the American Legislative Exchange Council (ALEC), the index of “Economic Freedom in North America” developed by the Fraser Institute in Canada, and perhaps others. Each of these indices is created by measuring a variety of policies and combining them into a single score, but the specific policies included and the weights attached to them differ. Each is available for all 50 states for several years, and each source publishes a report or spreadsheet with the underlying data. Each of these indices also incorporates other policies such as tax rates, but the availability of the underlying data will allow me to focus on measures of economic regulation.

It is not clear at this point whether I will include much statistical analysis of the causes or consequences of variations in regulatory burden, aside from some correlations to help me assess validity. This is primarily an exploratory analysis to compare and evaluate the available measures and determine whether any of them might be suitable for a larger study. One thing that is already evident is that none of the indices mentioned above include variation in state enforcement of federal regulations. For example, all states are covered by federal air and water pollution laws (although states can choose to adopt the stricter “California standard” for vehicle emissions), but states are largely responsible for enforcement and there is significant variation in their enforcement effort. Some measure of this would need to be included in an overall index of regulatory burden.

Author

• Robert C. Lowry, University of Texas at Dallas