Policy Papers

Understanding Regulatory Innovation: The Political Economy of Removing Old Regulations Before Adding New Ones

by and

During the last decade, governments have shown increasing interest in curbing the growth of regulation by requiring that one or more regulations be removed before a new regulation can be added. We provide a comprehensive review of this innovation in regulatory policy. There are three main conclusions that flow from our analysis: First, while some governments claim this policy has made regulatory agencies more sensitive to regulatory costs, none of the countries we review has demonstrated that this policy innovation has actually led to improvements in economic efficiency. Second, all of these policies are implemented in conjunction with a requirement related to the economic impact of regulations. Typically, the economic requirement is that the costs associated with the new regulation be less than the costs associated with the regulations being removed. For existing applications, these costs have been defined narrowly, and they do not provide a good measure of the full social costs of a policy. The US appears to be adopting a markedly different approach that will consider both economic costs and benefits. Third, we find support for the hypothesis that centrist or conservative political parties are more likely to implement these policies. We argue that the requirement to remove one or more new regulations before adding a new regulation is best understood in terms of symbolic politics.