The impact of government regulations on business performance

Abstract

Evaluation of government policies to improve performance of small business sector has provoked a great deal of debate and empirical enquiries in recent years. Initially economists were of the opinion that government policies have no impact on business cycle but after the great depression of the 1930s, Keynes showed that government policies could affect business cycle. For example, if government imposes taxes and duties that are not commensurate with its profit margin on a particular sector, businessmen can lose interest in the sector and move their capital to another sector. Similarly, tax and duty exemption for a particular sector would encourage businessmen to invest more in the sector thereby making the sector to be attractive to other investors. Furthermore, if a country’s monetary policy ensures availability of loans at a reasonable rate, investment will also grow. 

The prevailing global order has a tremendous impact on a country's business. It may be legal or illegal. For example, the USA manipulated the UN to impose sanctions on Iraq in the 1990s, these sanctions destroyed Iraqi business for which it lost business worth billions of dollars as well as money in banks in USA and its allies. 

Furthermore, the increasingly complex financial integration of economies coupled with turmoil in currency markets and their impacts have revived interests on external sector variables, their volatility, and how they affect the domestic economy. The exchange and inflation rates are important factors affecting business organization performance. Most studies on exchange rate have always argued that the type of exchange rate regimes incorporated by a country have implications on the economy through their effects on international trade, output, financial markets, inflation, employment, and investment (both domestic and foreign). 

As a direct consequence of the devaluation, producers have found that they need more thousands of Naira to procure the same quantity of inputs (Olukosi, 1993). However, fiscal policy like tax holiday has helped to grow some notable companies i.e. Dangote groups and Honeywell groups in Nigeria. Value added tax (VAT) as a major source of revenue to the government is a huge burden on most firms in Nigeria. Most of these firms prefer to enjoy tax holidays and shift the burden of VAT to their consumers.