Three Essays on Regulation and Economic Growth

James Broughel

Advisor: Tyler Cowen, PhD, Department of Economics

Committee Members: Garett Jones, Jerry Ellig

Carow Hall, Conference Room
December 14, 2016, 02:00 PM to 11:00 AM


This dissertation explores the relationship between government-issued regulations and economic growth. The first essay surveys the models of economic growth most commonly used by economists to produce a theoretical framework for understanding the growth impacts of regulations. Beginning from a technology-augmented Solow model, a system is presented for classifying economic growth impacts, and the channels by which regulations enter the economic system are described. Next, a more comprehensive set of economic growth models is surveyed, with the role of regulation highlighted in each model. The essay concludes by discussing some remaining unsolved puzzles in growth theory, including the role of institutions and population as contributors to economic growth.

The second essay explores how growth theory has influenced the economic analysis of individual regulations, arguing that growth theory has contributed to confusion in regulatory benefit-cost analysis (BCA) with respect to the purpose of the social discount rate. Economists discount future benefit and cost flows for a variety of reasons, including time preference, diminishing marginal utility of consumption, opportunity cost of capital, and risk aversion. Many of these rationales for discounting relate to the Ramsey equation found in neoclassical growth theory. This essay argues that Ramsey approaches to discounting are problematic for use in regulatory BCA because they are inconsistent with certain foundational principles of BCA. It is argued that a more useful discounting framework is one that is based on the time value of money, where discounting is used as a way to compare investment projects to a baseline alternative investment. A social discount rate used in this manner avoids many ethics controversies that can arise in Ramsey discounting approaches because it gives no special treatment to the present generation over future generations, but it still recognizes and accounts for the importance of economic growth.

The final essay uses time series econometric techniques to explore how federal regulation predicts changes in aggregate measures of the price level. The approach distinguishes between the long-run effects of the cumulative stock of all federal regulations and the short-run impacts of the flow of new regulations finalized each year. Cointegration estimates show a significant long-run statistical relationship between the stock of federal regulation and three measures of the price level. Similarly, output from structural vector autoregressions show that short-run shocks to the flow of federal regulation predict significant increases in the same three price indices. The essay concludes with discussion of the mechanisms by which regulation and the price level might be linked, concluding that regulations may be an important source of supply-side technology shock.