The Economic Effects of Sunset Laws

Introduction

Sunset provisions set expiration dates on government programs, regulations, or agencies unless lawmakers take action to renew them. When Colorado passed one of the nation’s first comprehensive sunset laws in 1976, reformers believed they had found a powerful tool for accountability. The idea was simple: by requiring periodic review, sunset laws would weed out obsolete or wasteful programs, restrain bureaucratic drift, and reallocate resources toward more productive uses. We call this the “Good Government Hypothesis”: only agencies and rules that can demonstrate real public value under scrutiny should survive.

Research on the effectiveness of sunset laws has been mixed. By the 1990s, enthusiasm for sunsets had faded. Several states repealed their laws or replaced them with softer performance-audit systems. What had been hailed as a hallmark of good government came to be seen as a blunt tool, one that, without a real chance of termination, delivered only marginal gains.

However, this mixed record is precisely why sunset policy deserves to be revisited. The early wave of sunset laws was mostly agency-based and thus likely produced front-loaded, one-time gains: early review cycles cleared the backlog of low-value agencies or curbed bureaucratic drift, but once addressed, and agencies learned how to survive review, the process became routine and less reforming. This dynamic is evidence that the original design was not built to generate improvements indefinitely. In addition, a second and distinct policy tool merits scrutiny: regulation-based sunsets, which put periodic renewal pressure on the rules themselves, not just the agencies that administer them, and aims at preventing gradual accumulation of outdated and burdensome requirements.

Key Findings

• Sunset laws must be designed and enforced credibly. My research with Tanner Jones from Vulcan Technologies suggests that sunset laws can improve economic performance, but not automatically. Using roughly 60 years of state data, we find that, on average, the adoption of sunset provisions is associated with a rise of real GDP per capita by about 27% (roughly $9,000) within 10 years of adoption. Gains tend to taper off about 5 years after adoption.
• There is important variation across adopting states. Some early adopters show sizable positive effects, while other cohorts exhibit smaller or even negative estimates. When we apply stricter requirements for comparison by excluding states that are not well matched, the average effect becomes meaningfully smaller, which suggests that the largest estimates are driven by a subset of states. Moreover, our sensitivity analyses show that the evidence is strongest over short- to medium-term horizons.
• Agency-based sunsets appear to generate gains primarily during early review cycles, consistent with a “backlog-clearing mechanism”: reorganizing agencies, eliminating low-value programs, or imposing scal discipline in anticipation of review. Rule-based sunsets, which were adopted in four states, has more limited evidence. Tennessee stands out with an estimated rise of roughly $3,000 per capita.
• The central takeaway is that sunset laws do not categorically succeed or fail; they seem to produce meaningful gains when the expiration mechanism is credible and well-designed.

Policy Recommendations

Prioritize what drives results. Credible expiration threats, intensive review processes, and attention to regulatory stock (not just agency structure) are the design features most likely to generate meaningful effects.

1. Make the expiration threat real. Require affirmaive reauthorization votes, avoid automatic extensions, and impose meaningful procedural costs on continuation.
2. Pair agency-based sunsets with rule-based sunsets. Don’t just review agencies; put periodic renewal pressure on the regulatory code itself.
3. Design sunsets as recurring, high-intensity review cycles. Use staggered review waves to recreate the early “disciplining” effect rather than a one-time backlog cleanout.
4. Build the performance infrastructure to support review. Invest in outcome and cost measurement so sunset reviews identify concrete inefficiencies and verify efficiency gains not merely budget changes.

Summary

Sunset laws are most effective when the expiration threat is credible and renewal is an active choice, not an automatic habit. In our evidence, agency-based sunsets are associated with the most consistent gains, though the size and durability of those gains vary meaningfully across states. Rule-based sunsets can also deliver benefits, but only when they impose genuine legislative oversight and make lapse the default absent affirmative action. Without credibility, high-intensity review, and clear accountability, sunset dates become symbolic deadlines rather than a durable tool for better government.

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Source: Jones, T. & Quandt, R. (2025). An iridescent sunset: An empirical analysis of sunset legislation. Journal of Regulatory Economics (68)85-123.