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

Victoria University of Wellington Business School Working Paper No. 04/2014

54 Pages Posted: 18 Feb 2014

See all articles by Florian Misch

Florian Misch

ZEW – Leibniz Centre for European Economic Research

Norman Gemmell

Victoria University of Wellington - Victoria Business School

Richard Kneller

University of Nottingham

Multiple version iconThere are 3 versions of this paper

Date Written: January 31, 2014

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.

Keywords: Economic Growth, Fiscal Policy, Business Perceptions, Diagnostics

JEL Classification: D20, E62, O12

Suggested Citation

Misch, Florian and Gemmell, Norman and Kneller, Richard, Using Surveys of Business Perceptions as a Guide to Growth-Enhancing Fiscal Reforms (January 31, 2014). Victoria University of Wellington Business School Working Paper No. 04/2014. Available at SSRN: https://ssrn.com/abstract=2397548 or http://dx.doi.org/10.2139/ssrn.2397548

Florian Misch (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Norman Gemmell

Victoria University of Wellington - Victoria Business School ( email )

PO Box 600
Wellington 6140
New Zealand

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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