Zero-Based Regulation

Abstract

A common way of imposing fiscal discipline in private companies, as well as in some governments, is a practice called zero-based budgeting (ZBB). The idea behind ZBB is simple: require that all expenditures be justified anew each period. There is no assumption that spending set at a particular level in a previous year means the same level of spending or more spending will be authorized the next period. Instead, a zero-base is the relevant baseline from which spending levels are set during the budgeting process. This chapter discusses a counterpart to ZBB in the regulatory sphere, namely zero-based regulation (ZBR). The idea behind ZBR is that regulations must periodically be justified anew, just as spending authorizations are periodically reevaluated under ZBB. A ZBR system will have two central pillars: sunset provisions and regulatory impact analysis requirements. Sunset provisions are automatic expiration dates built into regulations. These trigger reevaluation of rules and ensure the default is that rules go away, i.e., return to zero. Regulatory impact analysis requirements, meanwhile, are a form of economic analysis, which can be used as a means to rank and prioritize regulations according to their effectiveness. Taken together, these reforms have the potential to reduce costs substantially while also improving regulatory efficiency.