April, 2022

The Regressive Effects of Regulations in North Carolina

  • Dustin Chambers

  • Colin O'Reilly

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KEY FINDINGS

Regulations have unintended consequences, and these consequences can disproportionately affect low-income households. For example, more regulations are associated with higher consumer prices, fewer small business start-ups, and fewer new jobs. Recent research also shows that a greater regulatory burden is associated with increased poverty rates and higher levels of income inequality.

Within the state of North Carolina, federal regulation growth since 1997 is associated with 256,461 more people living in poverty and a 4.55 percent increase in income inequality.

POVERTY

Given the growth of federal regulations affecting North Carolina residents and businesses between 1997 and 2017, we estimate that regulation growth over this period is associated with an additional 256,461 people living in poverty in 2019 (1,383,760 actually in poverty versus 1,127,299 if there had been no regulation growth) and an increase in the poverty rate of 2.52 percentage points (13.6 percent actually living in poverty versus 11.08 percent if there had been no regulation growth).

The Mercatus Center’s Federal Regulation and State Enterprise (FRASE) index measures the effective federal regulatory burden upon a state (defined as “the degree of impact federal regulations have on a state’s economy relative to federal regulations’ impact on the national economy”). Using the FRASE index, researchers have found that states with a higher incidence of federal regulations tend to exhibit higher poverty rates. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state corresponds to about a 2.5 percent increase in the poverty rate.

From 1997 to 2017 (the period for which FRASE estimates are available), the effective federal regulatory burden upon North Carolina increased by 91 percent and is associated with an increase in North Carolina’s poverty rate of 22.75 percent. As of 2019, the overall poverty rate in North Carolina stood at 13.6 percent. If the increase in the regulatory burden had not occurred, our research suggests that the poverty rate could have been as low as 11.08 percent in 2019. Though this may not seem like a large difference in relative terms, it would have amounted to 256,461 fewer people living in poverty in North Carolina in 2019.

INCOME INEQUALITY

We estimate that the accumulation of federal regulation affecting North Carolina residents and businesses between 1997 and 2017 is associated with a 4.55 percent increase in income inequality.

Using the FRASE index, researchers have found that states with a higher incidence of federal regulations also have higher levels of income inequality. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state corresponds to an approximate 0.5 percent increase in the state’s Gini coefficient (the most commonly used measure of income inequality).

In view of the link between rising poverty and federal regulations, the increase in income inequality in North Carolina is not surprising. From 1997 to 2017, the effective federal regulatory burden upon North Carolina increased by 91 percent, and that increase is associated with a 4.55 percent increase in North Carolina’s level of income inequality. As of 2018, North Carolina was the 27th most unequal state in terms of income inequality (1 = most inequality, 50 = least inequality).