Federal regulatory agencies in the US have been required to produce a regulatory impact analysis (RIA) for major regulations since the early 1980s. The analysis should include an estimate of the expected benefits and costs of the regulatory action (a benefit-cost analysis, or BCA) as well as a description of the parties who are likely to receive those benefits and incur those costs. The latter part of an RIA is known as a distributional analysis, and is not part of a classic BCA. Distributional analysis explores how wealth is redistributed as a result of policy decisions.
Recent research suggests agencies rarely conduct general distributional analysis of the parties likely to receive benefits and bear costs, and when they do, it is often incomplete. Agencies fail to conduct proper analyses despite executive orders and laws that repeatedly draw attention to the importance of the distributional effects of regulations.
A new policy brief by Richard Williams and James Broughel at the Mercatus Center sets forth five principles for analyzing distribution in regulatory impact analysis:
- Distributional analysis should be part of an RIA but kept separate from a BCA. A BCA regards economic efficiency as it tells decision makers whether the benefits of a proposed policy exceed the costs, no matter how they are distributed. A distributional analysis illuminates who receives those benefits and costs (and transfers).
- Analysts should identify groups that are likely to be impacted by the regulation. Distributional analysis may not always be necessary; however, if any of the groups identified as groups of concern in executive orders or laws are impacted by a regulation, this might signal to analysts that further distributional analysis is necessary.
- Analysts should determine the degree to which a regulation is likely to have regressive or progressive effects.
- Transfers should be included in a distributional analysis. While pure transfers do not affect overall benefits or costs, transfers may still have an important role to play as part of a distributional analysis, especially transfers going to groups that have been singled out for particular consideration.
- Analysts should consider how the tolerance to bear regulatory costs varies across subpopulations.
The full policy brief is available here.
(Fabrizio Di Mascio)