Using surveys of business perceptions as a guide to growth‐enhancing fiscal reforms

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non--Technical SummaryGood policy advice, in addition to requiring sound theoretical frameworks to identify growth--enhancing fiscal reforms, also needs a reliable evidence base. Much of this evidence base has tradi--tionally come from applications of econometric methods to various fiscal aggregates. However, con--cerns have recently been raised over the merits of this type of evidence for policy reform advice in practice; see, for example, Rodrik (2005), Hausmann et al. (2008a). It seems therefore useful to ques--tion whether business perception data included for instance in the World Bank Enterprise Surveys (WBES) are a useful additional source of information to guide policy makers' choices. These surveys contain ratings of various factors regarded as 'obstacles' or 'constraints' on firms' growth perfor--mance as identified by firm owners or managers. With firms' investment decisions likely to be an important driver of aggregate economic growth, and these investment decisions likely to be affected by firms' perceptions, such perception indicators could potentially be a valuable source of infor--mation on actual growth constraints. Indeed, a number of authors have recently argued over the merits of such business survey information as a reliable identifier of actual constraints, and the policy reforms that might follow.The objective of this paper is to examine whether, and when, subjective perceptions of firms may be a useful source of information to help identify growth--enhancing fiscal reforms. Specifically, adopting the standard theoretical framework for the analysis of fiscal policy and long--run growth, we demon--strate that firms' perceptions can be expected to suffer from particular biases. We show that while these biases can be expected to be important for some fiscal policy reform options, they are not for others. This suggests that it is important to distinguish between the specific contexts in which such business perception information is likely to offer reliable or unreliable guidance to growth--enhancing policy reforms. The essence of our argument is that, in part because of the way business survey ques--tions are constructed, firms' responses can be expected to focus on the direct effects of policies alle--viating particular constraints that they see as obstacles, while ignoring the externalities, or indirect effects of these policies. We exploit this assumption to model firm perceptions of fiscal policy--related constraints including taxation and...

The Efficiency of EU Public Administration in Helping Firms Grow

“…It may be argued that compared to the remaining obstacles, transport is of a different nature as it more strongly depends on the stock of public capital that is accumulated over time. Misch, Gemmell and Kneller (2014) show that this is one reason of why transport is often seen as the least impeding constraint irrespective of actual transport barriers or costs in within-country rankings. This implies that when this is the case, there are no clear implications for policies that intend to remove transport barriers.…”

“…Third, it is sometimes argued that firm managers are short-sighted and do not understand what it takes to remove a particular obstacle; for instance if a particular obstacle is judged as very severe, it may still be too costly to remove it. Misch, Gemmell and Kneller (2013) use endogenous growth models in which the government levies an income tax to provide public inputs to the production of private firms to examine the usefulness of business perception data. The paper demonstrates that business perceptions of growth constraints are subject to systematic biases; in particular, it can be shown that firms systematically overestimate the growth-enhancing effects of lower tax rates, and underestimate the growth-enhancing effects of greater provision of public capital.…”

Productivity and Tax Evasion

“…As mentioned above, we control for subjective perceptions of the severity of tax administration as a business constraint which could likewise affect the propensity to evade taxation. To control for firm-level differences in this variable, we follow the literature and divide the rating of this constraint by the average subjective rating of all constraints that could plausibly affect tax compliance (Misch et al, 2014). Apart from tax administration, these include tax rates, access to finance and competition from informal companies.…”

Institutional and economic transition in Vietnam: Analysing the heterogeneity in firms’ perceptions of business environment constraints

“…Finally, our analysis is contextualized within the Vietnamese policy debate as a useful informative base for defining public interventions calibrated on the different categories and necessities of Vietnamese enterprises. Here, subjective perceptions are considered a consistent criterion for understanding the necessities of firms as well as their policy demand (Hallward-Driemeier and Aterido, 2009; Misch et al., 2014). While the approach of the Vietnamese government seems to assume a uniform demand for business environment reforms that is mainly consistent with the needs of the most influential firms (Nguyen et al., 2015), this paper represents an attempt to inform policy debate about the heterogeneity of the necessities and demands coming from different actors of the economy.…”