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Quantifying the Impact of Red Tape on Investment: A Survey Data Approach

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  • Bruno Pellegrino
  • Geoffery Zheng

Abstract

An important strand of research in macro-finance investigates which factors impede enterprise investment, and quantifies their aggregate cost. In this paper, we make two contributions to this literature. The first contribution is methodological: we introduce a novel framework to calibrate macroeconomic models with firm-level distortions using enterprise survey micro-data. The core of our innovation is to explicitly model the firms’ decisions to report the distortions they face in the survey. Our second contribution is to apply our method across seven countries to characterize the distribution of these distortions and estimate the GDP loss induced by distortionary red tape. Our estimates are based on a dynamic general equilibrium model with heterogeneous firms whose capital investment decisions are distorted by red tape. We find that the aggregate cost of red tape varies widely across the countries in our dataset, with an average cost of of 0.8% of annual GDP. Our framework opens up a new range of applications for enterprise surveys in macro-financial modeling and policy analysis.

Suggested Citation

  • Bruno Pellegrino & Geoffery Zheng, 2023. "Quantifying the Impact of Red Tape on Investment: A Survey Data Approach," CESifo Working Paper Series 10447, CESifo.
    • Handle: RePEc:ces:ceswps:_10447
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    More about this item

    Keywords

    bureaucracy; growth; investment; legislation; misallocation; red tape; regulations; survey;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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