Quantifying the impact of red tape on investment: A survey date approach

Bruno Pellegrino and Geoffery Zheng

No 335, Working Papers from The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State

Abstract: An important strand of research in macro-finance investigates which factors impede enterprise investment, and what is their aggregate economic cost. In this paper, we make two contributions to this literature. The first contribution is methodological: we introduce a novel framework to calibrate macroeconomic models with firm-level distortions using enterprise survey micro-data. The core of our innovation is to explicitly model the firms' decisions to report in the survey the distortions they face. Our second contribution is to apply our method across seven countries to characterize the distribution of these distortions and estimate the gross domestic product (GDP) loss induced by distortionary red tape. Our estimates are based on a dynamic general equilibrium model with heterogeneous firms whose capital investment decisions are distorted by red tape. We find that the aggregate cost of red tape varies widely across the countries in our dataset, with an average cost of 0.8% of annual GDP. Our framework opens up a new range of applications for enterprise surveys in macro-financial modeling and policy analysis.

Keywords: Bureaucracy; Growth; Investment; Legislation; Misallocation; Red Tape; Regulations; Survey (search for similar items in EconPapers)
JEL-codes: C83 E2 E6 G38 H1 H2 K2 O1 O4 (search for similar items in EconPapers)
Date: 2023
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Related works:
Journal Article: Quantifying the impact of red tape on investment: A survey data approach (2024)
Working Paper: Quantifying the Impact of Red Tape on Investment: A Survey Data Approach (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cbscwp:335

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