33: In Praise of (Some) Red Tape: A New Approach to Regulation
Author(s) Gordon D. Menzies, Economics Discipline Group, UTS Business School, University of Technology, Sydney. Peter Dixon, VU, Maureen Rimmer, VU
Date of publication: January 2016
Working paper number: 33
Abstract:The costs of removing red tape include a lower chance of detecting recession-generating flaws in the financial system. What we call independent dimensions of regulation (IDRs) operate more or less independently to other groupings. If an IDR’s optimality is unknown, it may be risky to remove. Uncertainty thus implies that (some) red tape – i.e. a small amount of overregulation – is justified, in contrast to the Brainard (1967) principle that uncertainty dictates less policy activism. The long run GDP benefit of a 1% improvement in financial services productivity is 0.06% in our CGE model. These relatively modest gains reinforce our conclusion
