Economic Policy Analysis
Week 1
Fifth section
Dr. Ulrike Hotopp
Normative and Positive
Economics
Positive and Normative
Economics
- Positive economics deals with objective explanation
Reminder
from
• e.g. if the price of a good rises then its demand will go
Microecono
mics, week down
7
- Normative economics offers prescriptions based on
value judgements
• e.g. a tax should be imposed on tobacco to discourage
smoking
Concepts and frameworks
used by economists
Sources of information
The Green Book is the guidance provided by
Government. The main tools it contains are
applicable in other sectors as well. There is no
government specific tool – only the point of
view differs.
Specific aspects include:
- Distributional analysis (impact differs
depending on who is affected)
- What is included in the analysis
The ROAMEF cycle
Analytical frameworks
• Business cases for spending
• Regulatory impact assessment for regulation
Both require:
Options identification and analysis for long and short listing of options.
While the terminology might be different, the basic frameworks and
concepts also exist in business. For example to make a case for a major
investment to a board of a company business case style economic analysis
will be done.
This is the
most
relevant
dimension
for you
(Regulatory) Impact Assessment
• DBT has published the Better Regulation
Framework –Guidance, September 2023 (
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etter_Regulation_Framework_guidance.pdf
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din
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• UK Government aims to minimise the
ry
lso
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regulatory obligations/burdens/cost for
om
business.
tc
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• The Better Regulation Framework sets out a
clear path for the analysis underpinning
regulatory proposals:
Regulatory Impact Assessment (ctd)
• Impact Assessment follows the Green Book methodology
Policy making:
Understanding the costs, benefits, and risks of any new measure or
proposal is fundamental to better regulation and better policy making.
Economic analysis is scrutinized by the Regulatory Policy Committee.
Steps of the Better Regulation
Framework
Preferred regulatory
Policy Issue and Options option identified and Collective agreement to Announce preferred
Appraisal options assessment announce regulatory options
produced
RPC
Post Implementation
Regulatory Impact Collective agreement to Legislation and
review (within 5 years)
Assessment regulate Implementation
(evaluation)
Voluntary
RPC and for RPC
high impact RPC: Regulatory Policy Committee
regulations
Generating long and short lists
• Economic analysis contributes to the long listing of options.
• Use economic tools (to be covered next week) to calculate costs and
benefits.
• Provide and discuss these with colleague leading the policy area.
Summary
• The role of Government in complex modern economies
• Political objectives and strategies identify necessary interventions
• The motivations for intervention covering market failures and equity
arguments
• The types of intervention Government can use such as taxes, subsidies,
regulations, standards, provision of goods and services and creation of
markets.
• The barriers and difficulties that arise in interventions
• Policy frameworks in the UK
• Framework for spending money – Business Case
• Framework for regulation – Regulatory Impact Assessment
What comes next – outlook to week
2
We will use what we have covered today to:
• Identify and understand the issues confronted in policy design
• Discuss efficiency, equity, macroeconomic stability and growth
• Introduce concepts in the valuation of goods and services
