The Output Effects of Systematic and Non-Systematic Fiscal Policy Changes in Greece

Abstract

This paper investigates the effects of systematic (or rules-based) and non-systematic (exogenous) fiscal policy changes on output growth in Greece, focusing also on the composition of fiscal policy. Exogenous fiscal policy changes are associated with Keynesian responses (with the exception of net transfers and VAT). Although systematic government spending cuts aiming at improving fiscal performance tend to have a Keynesian effect on output growth in the short term, they ultimately result in a non-Keynesian response, raising output growth. Systematic direct tax hikes, aiming at correcting fiscal imbalances, can have positive medium to long term growth effects.

Keywords: Fiscal rules, output growth, exogenous, systematic policy responses

JEL Classification: E6, H6, H3