A Practical Measure of Red Tape

ABSTRACT Regulation can influence economic dynamism, the distribution of income, and various measures of economic welfare. Despite a substantial proportion of regulation in the United States originating at the state level, we are not aware of any comprehensive measure of excess regulation or “red tape” at the state level. We fill this notable gap by constructing a novel measure of state‐level red tape based on the State RegData dataset. The red tape index measures the excess stringency of regulation in each industry relative to a benchmark level of regulation and then weights the extent of excess stringency on the industrial composition of each state. As a comprehensive measure of regulation, the red tape index differs fundamentally from other existing measures of state‐level regulation, which tend to target a particular type of regulation (e.g., labor market regulation). The red tape index reveals wide variation in the level of industry regulation among states and that most states have regulations that go beyond a so‐called “light touch” regulatory approach, implying that red tape is pervasive. This index may be of value for both empirically estimating the effect of comparatively high levels of state regulation on various outcomes of interest and for policy makers seeking to streamline administrative rules.