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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 surveys of 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 business perceptions of growth constraints are subject to systematic biases except when firms compare different types of public services or different types of public capital. In particular firms can be expected to systematically over-estimate the growth-enhancing effects of lower tax rates, and under-estimate the growth-enhancing effects of greater provision of public capital. 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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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 13-012.

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Date of creation: 2013
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Handle: RePEc:zbw:zewdip:13012

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Keywords: Economic Growth; Fiscal Policy; Imperfectly Informed Governments; Business Perceptions; Diagnostics; Subjective Data;

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  1. 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.
  2. John Creedy & Shuyun May Li & Solmaz Moslehi, 2008. "The Composition of Government Expenditure in an Overlapping Generations Model," Department of Economics - Working Papers Series 1043, The University of Melbourne.
  3. Tsoukis, Chris & Miller, Nigel J., 2003. "Public services and endogenous growth," Journal of Policy Modeling, Elsevier, vol. 25(3), pages 297-307, April.
  4. Willi, Semmlero & Alfred, Greiner & Bobo, Diallo & Anand, Rajaram & Armon, Rezai, 2011. "Fiscal policy, public expenditure composition and growth. theory and empirics," MPRA Paper 35997, University Library of Munich, Germany.
  5. 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.
  6. Pierre-Richard Agénor, 2005. "Fiscal Policy and Endogenous Growth with Public Infrastructure," The School of Economics Discussion Paper Series 0536, Economics, The University of Manchester.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
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