Twice as effective: business environment, SME owners’ satisfaction, and local government revenue performance

Abstract

ABSTRACT Spatial disparities in human and social capital, entrepreneurial culture, and industrial specialisation emphasise the pivotal role of local governments in shaping the business environment. Nevertheless, scant attention has been accorded to the complex relationships between local government activities, small and medium-sized enterprise (SME) owners’ satisfaction, and subsequent local economic outcomes. Using exploratory factor analysis, confirmatory factor analysis, and structural equation modelling on data from 513 SME owners, we found that higher SME owner satisfaction is positively associated with increased local employment and amplified municipal tax revenues from SMEs. Interestingly, our results indicate a negative relationship between SME owner satisfaction and the annual change in self-employment rates within the locality. This study contributes to the literature by empirically linking local government services to tangible economic outcomes through SME owners’ satisfaction. It provides valuable insights for policymakers on optimising the local business environment to foster SME growth and enhance municipal economic performance.