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Using Surveys of Business Perceptions as a Guide to Growth-Enhancing Fiscal Reforms

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  • Misch, Florian
  • Gemmell, Norman
  • Kneller, Richard

Abstract

This paper assesses the merits of using business perceptions of growth constraints as a guide to growth-enhancing fiscal policy reforms. Using endogenous growth models in which the government levies an income tax to provide public inputs to the production of private firms, the paper demonstrates that such perceptions of growth constraints may be misleading from a policy perspective. In particular firms can be expected to systematically overestimate the growth-enhancing effects of lower tax rates relative to public services and public capital, and underestimate the growth-enhancing effects of greater provision of public capital relative to taxation and public services. In addition, we show that firms rank different public services and different types of public capital according to the actual costs they impose on firms. It is then shown that these theoretical predictions regarding how firms rank constraints correspond closely to the observed ranking of constraints by firms in the World Bank’s Enterprise Surveys.

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File URL: http://researcharchive.vuw.ac.nz/handle/10063/3140
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Bibliographic Info

Paper provided by Victoria University of Wellington, Chair in Public Finance in its series Working Paper Series with number 3140.

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Date of creation: 2014
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Handle: RePEc:vuw:vuwcpf:3140

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Postal: School of Accounting & Commercial Law, Victoria University of Wellington, PO Box 600, Wellington, New Zealand
Phone: +64 (4) 463 5775
Fax: +64 (4) 463 5076
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Web page: http://www.victoria.ac.nz/sacl/about/chair-in-public-finance
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Keywords: Economic growth; Fiscal policy; Business perceptions; Diagnostics;

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  1. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
  2. Tsoukis, Chris & Miller, Nigel J., 2003. "Public services and endogenous growth," Journal of Policy Modeling, Elsevier, vol. 25(3), pages 297-307, April.
  3. Sugata Ghosh & Udayan Roy, 2004. "Fiscal policy, long-run growth, and welfare in a stock-flow model of public goods," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 742-756, August.
  4. John Creedy & Shuyun May Li & Solmaz Moslehi, 2009. "The Composition of Government Expenditure in an Overlapping Generations Model," Department of Economics - Working Papers Series 1064, The University of Melbourne.
  5. P R Agénor, 2005. "Fiscal Policy and Endogenous Growth with Public Infrastructure," Centre for Growth and Business Cycle Research Discussion Paper Series 59, Economics, The Univeristy of Manchester.
  6. Hallward-Driemeier, Mary & Aterido, Reyes, 2009. "Comparing Apples with....Apples : how to make (more) sense of subjective rankings of constraints to business," Policy Research Working Paper Series 5054, The World Bank.
  7. Edwards, Lawrence & Balchin, Neil, 2008. "Trade related business climate and manufacturing export performance in Africa: A firm-level analysis," MPRA Paper 32863, University Library of Munich, Germany.
  8. Semmler, Willi & Greiner, Alfred & Diallo, Bobo & Rezai, Armon & Rajaram, Anand, 2007. "Fiscal policy, public expenditure composition, and growth theory and empirics," Policy Research Working Paper Series 4405, The World Bank.
  9. Goncalo Monteiro & Stephen J. Turnovsky, 2008. "The composition of productive government expenditure: consequences for economic growth and welfare," Indian Growth and Development Review, Emerald Group Publishing, vol. 1(1), pages 57-83, April.
  10. Misch Florian & Gemmell Norman & Kneller Richard, 2010. "Binding Constraints and Second-Best Strategies in Endogenous Growth Models with Public Finance," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-37, December.
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