Public Choice

, Volume 180, Issue 1–2, pp 57–90 | Cite as

How do federal regulations affect consumer prices? An analysis of the regressive effects of regulation

  • Dustin ChambersEmail author
  • Courtney A. Collins
  • Alan Krause


This study is the first to measure the impact of federal regulations on consumer prices. By combining consumer expenditure and pricing data from the Bureau of Labor Statistics, industry supply-chain data from the Bureau of Economic Analysis, and industry-specific regulation information from the Mercatus Center’s RegData database, we determine that regulations promote higher consumer prices, and that these price increases have a disproportionately negative effect on low-income households. Specifically, we find that the poorest households spend larger proportions of their incomes on heavily regulated goods and services prone to sharp price increases. While the literature explores other specific costs of regulation, noting that higher consumer prices are a probable consequence of heavy regulation, this study is the first to provide a thorough empirical analysis of that relationship across industries. Irrespective of the reasons for imposing new regulations, these results demonstrate that in the aggregate, the negative consequences are significant, especially for the most vulnerable households.


Regulation Federal regulations Regressive effects Distributional effects Consumer prices Consumer Expenditure Survey RegData 

JEL Classification

I18 D12 H23 L51 



We thank Fabrizio Iacone, Diana Thomas and the participants of the Regressive Effects of Regulation conference at Creighton University for their helpful review and comments. Dustin Chambers and Courtney Collins also thank the Mercatus Center (at George Mason University) for their financial support in drafting an earlier Mercatus Working Paper (February 2016) which motivated the current paper.


  1. Al-Ubaydli, O., & McLaughlin, P. A. (2015). RegData: A numerical database on industry-specific regulations for all United States industries and federal regulations, 1997–2012”. Regulation & Governance. doi: 10.1111/rego.12107.Google Scholar
  2. Anderson, T. W., & Hsiao, C. (1982). Formulation and estimation of dynamic models using panel data. Journal of Econometrics, 18, 47–82.CrossRefGoogle Scholar
  3. Ardagna, S., & Lusardi, A. (2010). Heterogeneity in the effect of regulation on entrepreneurship and entry size. Journal of the European Economic Association, 8, 594–605.CrossRefGoogle Scholar
  4. Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: monte carlo evidence and an application to employment equations. The Review of Economic Studies, 58, 277–297.CrossRefGoogle Scholar
  5. Becker, R. A. (2003). Pollution abatement expenditure by US manufacturing plants: Do community characteristics matter? B.E. Journal of Economic Analysis & Policy, 3, 1–23.Google Scholar
  6. Becker, R. A., & Henderson, J. V. (2000). Effects of air quality regulations on polluting industries. Journal of Political Economy, 108, 379–421.CrossRefGoogle Scholar
  7. Becker, R. A., & Henderson, J. V. (2001). Costs of air quality regulation. In Carlo Carraro & Gilbert E. Metcalf (Eds.), Behavioral and distributional effects of environmental policy (pp. 159–168). Chicago: University of Chicago Press.CrossRefGoogle Scholar
  8. Benson, B. L. (2004). Opportunities forgone: The unmeasurable costs of regulation. Journal of Private Enterprise, 19, 1–25.Google Scholar
  9. Benson, B. L. (2015). Regulation as a barrier to market provision and to innovation: The case of toll roads and steam carriages in England. Journal of Private Enterprise, 30, 61–87.Google Scholar
  10. Borren, P., & Sutton, M. (1992). Are increases in cigarette taxation regressive? Health Economics, 1, 245–253.CrossRefGoogle Scholar
  11. Ciccone, A., & Papaioannou, E. (2007). Red tape and delayed entry. Journal of the European Economic Association, 5, 444–458.CrossRefGoogle Scholar
  12. Crafts, N. (2006). Regulation and productivity performance. Oxford Review of Economic Policy, 22, 186–202.CrossRefGoogle Scholar
  13. Crain, N. V., & Crain, W. M. (2010). The impact of regulatory costs on small firms. Washington, DC: Small Business Administration, Office of Advocacy.Google Scholar
  14. Crain, W. M., & Crain, N. V. (2014). The cost of federal regulation to the US economy, manufacturing and small business. Washington, DC: National Association of Manufacturers.Google Scholar
  15. Dawson, J. W., & Seater, J. J. (2013). Federal regulation and aggregate economic growth. Journal of Economic Growth, 18, 137–177.CrossRefGoogle Scholar
  16. Djankov, S., McLiesh, C., & Ramalho, R. M. (2006). Regulation and growth. Economics Letters, 92, 395–401.CrossRefGoogle Scholar
  17. Dolar, B., & Shughart, W. F., II. (2007). The wealth effects of the USA Patriot Act: Evidence from the banking and thrift industries. Journal of Money Laundering Control, 10, 300–317.CrossRefGoogle Scholar
  18. Dorfman, N., & Snow, A. (1975). Who will pay for pollution control? the distribution by income of the burden of the national environmental protection program, 1972–1980. National Tax Journal, 28, 101–115.Google Scholar
  19. Fisman, R., & Sarria-Allende, V. (2004). Regulation of entry and the distortion of industrial organization. Working Paper 10929, National Bureau of Economic Research, Cambridge, MA, November.Google Scholar
  20. Gianessi, L., & Peskin, H. (1980). The distribution of the costs of federal water pollution control policy. Land Economics, 56, 85–102.CrossRefGoogle Scholar
  21. Gianessi, L., Peskin, H., & Wolff, E. (1979). The distributional effects of uniform air pollution policy in the United States. Quarterly Journal of Economics, 93, 281–301.CrossRefGoogle Scholar
  22. Goldstein, J., & Vo, L. (2012). How the poor, the middle class, and the rich spend their money. National Public Radio, Planet Money.
  23. Gørgens, T., Paldam, M., & Würtz, A. (2003). How does public regulation affect growth? Economics Working Paper 2003–14, University of Aarhus, Aarhus, Denmark.Google Scholar
  24. Greenstone, M. (2002). The impacts of environmental regulations on industrial activity: Evidence from the 1970 and 1977 Clean Air Act amendments and the Census of Manufactures. Journal of Political Economy, 110, 1175–1219.CrossRefGoogle Scholar
  25. Hazilla, M., & Kopp, R. (1990). Social cost of environmental quality regulations: A general equilibrium analysis. Journal of Political Economy, 98, 853–873.CrossRefGoogle Scholar
  26. Hoffer, A. J., Gvillo, R. M., Shughart, W. F., II, & Thomas, M. D. (2015). Regressive effects: causes and consequences of selective consumption taxation. Mercatus Working Paper, Mercatus Center, George Mason University.Google Scholar
  27. Kaplan, G., & Schulhofer-Wohl, S. (2016). Inflation at the household level. Working Paper 731, Federal Reserve Bank, Minneapolis, June.Google Scholar
  28. Klapper, L., Laeven, L., & Rajan, R. (2006). Entry regulation as a barrier to entrepreneurship. Journal of Financial Economics, 82, 591–629.CrossRefGoogle Scholar
  29. Lanne, M., & Luoto, J. (2014). Does output gap, labour’s share or unemployment rate drive inflation? Oxford Bulletin of Economics and Statistics, 76, 715–726.CrossRefGoogle Scholar
  30. McKenzie, R. B., & Macaulay, H. H. (1980). A bureaucratic theory of regulation. Public Choice, 35, 297–313.CrossRefGoogle Scholar
  31. McLaughlin, P. A., & Williams, R. (2014). The consequences of regulatory accumulation and a proposed solution. Working Paper 14-03, Mercatus Center, George Mason University, Arlington, VA, February.Google Scholar
  32. Miller, S. (2012). Public interest comment on the Department of Energy’s direct final rule: energy conservation standards for residential dishwashers. Washington, DC: George Washington University Regulatory Studies Center.Google Scholar
  33. Nickell, S. (1981). Bias in dynamic models with fixed effects. Econometrica, 49, 1417–1426.CrossRefGoogle Scholar
  34. Nicoletti, G., & Scarpetta, S. (2003). Regulation, productivity and growth: OECD evidence. Economic Policy, 18, 9–72.CrossRefGoogle Scholar
  35. Olson, M. (1965). The logic of collective action: Public goods and the theory of groups. Cambridge: Harvard University Press.Google Scholar
  36. OMB (Office of Management and Budget). (2014). Draft 2014 report to Congress on the benefits and costs of federal regulations and unfunded mandates on state, local, and tribal entities. Washington, DC: OMB.Google Scholar
  37. Paul, C., & Schoening, N. (1991). Regulation and rent-seeking: Prices, profits, and third-party transfers. Public Choice, 68, 185–194.CrossRefGoogle Scholar
  38. Peltzman, S. (1976). Toward a more general theory of regulation. Journal of Law and Economics, 19, 211–240.CrossRefGoogle Scholar
  39. Poterba, J. M. (1991). Is the gasoline tax regressive? In David F. Bradford (Ed.), Tax policy and the economy (Vol. 5, pp. 145–164). Cambridge, MA: MIT Press.Google Scholar
  40. Robison, D. (1985). Who pays for industrial pollution abatement? Review of Economics and Statistics, 67, 702–706.CrossRefGoogle Scholar
  41. Shughart, W. F., II. (2003). Regulation and antitrust. In Charles K. Rowley & Friedrich Schneider (Eds.), The encyclopedia of public choice (Vol. 1, pp. 263–283). Boston: Kluwer Academic Publishers.CrossRefGoogle Scholar
  42. Stigler, G. J. (1971). The theory of economic regulation. Bell Journal of Economics and Management Science., 2, 3–21.CrossRefGoogle Scholar
  43. Stock, J. H., & Watson, M. W. (2008). Phillips Curve inflation forecasts. Working Paper No. 14322, National Bureau of Economic Research.Google Scholar
  44. Thomas, D. (2012). Regressive effects of regulation. Working Paper No. 12-35, Mercatus Center, George Mason University, Arlington, VA, November.Google Scholar
  45. Wier, M., Birr-Pedersen, K., Jacobsen, H. K., & Klok, J. (2005). Are CO2 taxes regressive? evidence from the Danish experience. Ecological Economics, 52, 239–251.CrossRefGoogle Scholar
  46. Yandle, B. (1983). Bootleggers and Baptists: The education of a regulatory economist. Regulation, 7, 12–16.Google Scholar
  47. Zellner, A. (1962). An efficient method of estimating seemingly unrelated regression equations and tests for aggregation bias. Journal of the American Statistical Association, 57, 348–368.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  1. 1.Department of Economics and FinanceSalisbury UniversitySalisburyUSA
  2. 2.Department of EconomicsRhodes CollegeMemphisUSA
  3. 3.Department of Economics and Related StudiesUniversity of YorkHeslington, YorkUK

Personalised recommendations