Regulatory impact analysis (RIA) is a key policy tool that can provide decision makers with detailed information about the potential effects of regulatory measures on the economy, environment and social arrangements. RIA looks at all possible impacts of regulation, including costs and benefits, as well as sustainability. It assesses the capacity of government agencies to enforce regulation and the capacity of affected parties to comply. RIA processes should also include an ex post evaluation of whether regulations are functioning as expected.

For many OECD member countries, reducing the burden of government regulations on business and citizens is a large part of their strategy to improve economic performance and productivity. Red tape can be particularly burdensome to small business, where the proportion of resources diverted to administrative functions is greater than for large firms.

Transparency is one of the central pillars of effective regulation. Businesses need to be able to fully understand the regulatory environment in which they operate, and to have a voice in regulatory decision making. It is a major challenge to governments to ensure that their regulatory processes take into consideration the views of all groups in society (OECD, 2005). Transparency promotes regulatory quality by incorporating feedback about the design and effects of regulation. It increases the likelihood of compliance by building legitimacy in regulatory proposals and may therefore improve the effect of regulation and reduce the cost of enforcement.