Boosting Confidence: Is There a Role for Fiscal Policy?

25 Pages Posted: 21 Jul 2022

See all articles by Athanasios Tagkalakis

Athanasios Tagkalakis

Bank of Greece; University of Patras

Panagiotis Konstantinou

Athens University of Economics and Business

Date Written: April 1, 2010

Abstract

This paper investigates the widely held view that expansionary fiscal policy can boost consumer and business confidence, which will stimulate private spending and sustain economic activity. We find evidence in favor of this conjecture, i.e., cuts in direct taxes generate a positive effect on consumer and business confidence, while the same applies in cases of higher non-wage government consumption. However, higher government wage bills and government investment reduce confidence, possibly because they entail a permanent increase in the size of the public sector, which would have to be financed by higher future taxes.

Keywords: Fiscal Policy, Consumer Confidence, Business Confidence, Fiscal Stimulus of Confidence

JEL Classification: E62, H31, H32

Suggested Citation

Tagkalakis, Athanasios and Konstantinou, Panagiotis, Boosting Confidence: Is There a Role for Fiscal Policy? (April 1, 2010). Bank of Greece Working Paper No. 113, Available at SSRN: https://ssrn.com/abstract=4166800 or http://dx.doi.org/10.2139/ssrn.4166800

Athanasios Tagkalakis (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

University of Patras

Patra
Greece

Panagiotis Konstantinou

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece
+302108203197 (Phone)

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