Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278753 
Year of Publication: 
2023
Series/Report no.: 
New Working Paper Series No. 335
Publisher: 
University of Chicago Booth School of Business, Stigler Center for the Study of the Economy and the State, Chicago, IL
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.
Subjects: 
Bureaucracy
Growth
Investment
Legislation
Misallocation
Red Tape
Regulations
Survey
JEL: 
C83
E2
E6
G38
H1
H2
K2
O1
O4
Document Type: 
Working Paper

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