Cutting Red Tape: RegData Applications in North America

This is the introduction to the IPA report, Cutting Red Tape: RegData Applications in North America, which can be downloaded here.

There are many ways to measure red tape, from the “paperwork burden” of regulatory compliance, to estimates of the opportunity costs of red tape, to pages of legislation. All of these methods have costs and benefits. The paper work burden approach is simple to calculate, but captures only a narrow range of costs. Opportunity costs get closer to the real cost incurred by business of red tape, but are difficult and time consuming to estimate. And legislation page counts have the benefit of simplicity, but lack nuance.

In addition, all of these approaches are unable to capture the key problem of red tape: it imposes binding constraints on businesses, individuals, families, and non-government organisations. Red tape restricts these groups and individuals from pursuing their goals and objectives, and as result, imposes an array of economic and social costs.

“RegData” is a new red tape measurement approach that captures the restrictive nature of red tape. RegData uses machine learning-based textual analysis of the register of legislation to measure the actual restrictive content of legislation and regulations through words such as “shall”, “must”, “should”, “prohibited”, et cetera. The output of RegData is thus a count of the “regulatory restrictiveness clauses.”

This measure of restrictiveness clauses can then be used for a variety of purposes. For example, it can be used as a proxy for the changes to red tape overtime. It provides the foundation for advanced economic analysis, with the degree of regulatory restrictiveness cross-correlated with measures such as economic growth, wages, exports, and so on. Together these provide a solid foundation for evidence-based public policy advocacy.

Importantly, comparisons can be made across industries, sectors, and jurisdictions. It can be used to track the progress of claimed red tape reduction initiatives undertaken by governments. Importantly, RegData can and has been used as an institutional tool to reduce red tape. For example, some jurisdictions, such as the province of British Columbia in Canada (discussed further below) have used the regulatory restrictiveness approach as apart of “one-in-x-out” red tape reduction initiatives were x number of clauses are repealed for every new one introduced.

To date the Mercatus Center at the US-based George Mason University has compiled a dataset of 28 states in the US called “State RegData”. A number of these states have used state-level RegData analysis and case studies provided by the Mercatus Center to justify and explain the need for red tape reduction and broader regulatory reform. The experience of RegData is that it can be used as a catalyst to drive changes to policy the state and federal level.

In conjunction with Australian researchers from RMIT University the Mercatus Center is preparing a working paper recording the establishment of a baseline RegData panel of Commonwealth Government legislation, which will be published by July 2019 (subsequently published by Mercatus here).

The IPA is working with Mercatus to establish and support RegData Australia and enable associated economic analysis and development of public policy recommendations.

The case studies in this report include: