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Friday, December 23, 2011

Policy Uncertainty Adversely Affects Small Business Plans to Expand

A recent paper by Mark E. Schweitzer and Scott Shane at the Federal Reserve Bank of Cleveland looks at the relationship between economic policy uncertainty and small business expansion.

The authors found statistically significant negative effects of policy uncertainty on small business owners’ plans to hire and make capital expenditures over the last 25 years.

The correlations between the policy uncertainty and small business expansion plans "are strong enough to reject the argument that policy uncertainty is irrelevant for currently weak small business expansion plans."

For example, the authors found that policy uncertainty during the summer of 2011 exacerbated hiring plans by small businesses. The net percentage of small business owners planning to hire would have been 6 percentage points higher, if policy uncertainty was not present.

The authors recommend that "policymakers should take seriously the widespread anecdotal reports that policy uncertainty is adversely affecting small business owners’ expansion plans."

Read the study.

1 comment:

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