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How governments regulate businesses in their jurisdictions has a major effect on economic growth and individual liberty. Along with taxes and government spending, regulation is one of the three principal levers policymakers can move to shape the business climate of their nation, state, or city.

The Issue

Regulations impose enormous costs on consumers: approximately $1.5 trillion per year in the U.S. alone. Studies of regulations at the national level in the U.S. have found many regulations impose costs much greater than the benefits they create. Money spent complying with regulations reduces business and household incomes, giving rise to health and accident risks that must be taken into account when measuring the net benefit of the regulations. Economists estimate that every $15 million in additional regulatory compliance costs induces one fatality due to lost income. An analysis of the relation between federal regulation, measured by the number of pages in the Federal Register, and output per unit of capital, economic growth, and productivity showed that every 1 percentage point increase of the ratio of regulation to capital correlates with a .24 percentage point decrease in capital productivity.

Our Stance

Annual rankings of countries by their “economic freedom” also find close correlations between economic growth and indices of freedom, with regulations being an important part of the indices.