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
Date Written: January 31, 2014
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: Suggested Citation