Public utilities are funny things. The industry is highly capital intensive and many argue that it makes for natural monopolies. At the same time, access to electricity and water (and internet) are assumed as given in any modern building. Further, utility providers are highly, highly regulated at both the state and federal levels of government. Many utilities must ask permission prior to changing anything about their prices, capital, or even which services they offer.
Don’t get me wrong. Utility companies have a sweet deal. They are protected from competition, face relatively inelastic demand for their goods, and they have a very dependable rate of return. I just can’t help feeling like state governments are keeping hostage a large firm with immobile fixed business capital. For that matter, given what we know about the political desire for opaque taxation, I also have a suspicion that many states might tax their populations by using the utility companies as an ingenious foil. “Those utility companies are greedy, don’t you know. It’s a good thing that they are so highly regulated by the state.”
There are two types of utility taxation. 1) Gross receipts taxes are like an income tax. From the end-user’s perspective, the tax increases with each unit consumed. 2) A utility license tax is like a fee that the utility must pay in order to operate in the state. From the user’s perspective, well… This tax may not even appear on the monthly bill. But if it does, then the tax per household falls with each additional household that the utility serves. Either way, state governments can get their share of the economic profits that protection affords. Below is map which shows the 2021 cumulative utility tax per resident in each state.
Released this April, but I just heard about it today. Researchers did the painstaking work of going through all 50 states to determine which steps must be taken in each state before new regulations can take effect. For instance, it turns out half of states require economic analysis for new regulations, and half don’t. The paper is here: https://www.mercatus.org/publications/regulation/50-state-review-regulatory-procedures
Texas is one of the most regulated states in the country.
This is one of the surprises that emerged from the State RegData project, which quantifies the number of regulatory restrictions in force in each state. It turns out that a state’s population size, rather than political ideology or any thing else, is the best predictor of its regulations.
This is what I found, with my coauthors James Broughel and Patrick McLaughlin, when we set out to test whether a previous paper (Mulligan and Shliefer 2005) that showed a regulation-population link held up when we used the better data that is now available. We found that across states, a doubling of population size is associated with a 22 to 33 percent increase in regulation.
I’m James Bailey, an economist at Providence College who studies how government policies affect health care and the labor market. Thanks to Joy for the chance to join the blog for a few months!
For my first post, I have to share the brand new book I wrote a chapter of, “Regulation and Economic Opportunity: Blueprints for Reform“. Normally academic volumes like this are sold for hundreds of dollars, so only a few people with access to academic libraries end up reading them. But the publisher of this volume, the Center for Growth and Opportunity, released it as a free Ebook– so I hope you’ll check it out. It covers everything from housing and health care to energy and education to beer and cigarettes.
I wrote chapter 5, on how various regulations affect wages and employment. Here’s an excerpt: