Research: Cost-benefit analysis should be used more widely in assessing success of legislative projects
The use of cost-benefit analyses (CBAs) should be increased in regulatory impact assessment. A CBA would offer a consistent and, in principle, a simple way of assessing how successful legislative projects are. If the benefits exceed the costs, a policy change would be profitable in the economic sense. This is shown in the final report of a research project conducted by the Government Institute for Economic Research VATT, published on 11 January.
The report concludes that when changes are planned to local governments' responsibilities, too much attention is often paid to the direct impact on local government finances. It would be important to specify the impact on local government finances as carefully as possible, but it would be equally central to identify the costs or benefits arising from the amendments to the service users and other citizens. Therefore, meaningful regulatory impact assessment applies not only to local government finances but also to costs and benefits in society at large.
The VATT research group developed a coherent approach for regulatory impact assessment, which could be used for a systematic examination of the impact from the point of view of costs and benefits. The new examination framework could help spot problems in the existing preliminary assessment and enable to manage the quality of assessment. In addition, the results gained from the approach could be used in designing possible ex-post evaluations.
The approach examines the direction and extent of costs and benefits at three levels: from the point of view of the people in the target group, other people residing in the given municipality, and the rest of society. Whenever possible a numerical assessment is presented of the costs and benefits. As concerns tasks on which there is no or very little research data, a list is made of the anticipated key cost and benefit items. International academic literature focusing on each policy change is also presented briefly.
The report was prepared by a research group at VATT and it was carried out as part of the implementation of the Government's 2015 plan for analysis, assessment and research. The research project's goal was to develop a systematic approach, based on economics, which could be applied to regulatory impact assessment from the viewpoint of local government finances and the wellbeing of municipal residents. The research material comprised 24 law amendments or government bills relating to municipal duties, of which some had been implemented and some were proposals for bills. The majority of the amendments apply to education and cultural services, and healthcare and social welfare services.
Report on the impact assessment of local government duties and responsibilities (in Finnish)
Inquiries: Antti Moisio, Research Director, tel. +358 295 519 432, Antti Saastamoinen, Senior Researcher, tel. +358 295 519 500 and Tuomo Suhonen, Senior Researcher, tel. +358 295 519 507, VATT