Discretionary Fiscal Policy and Economic Activity in Greece

69 Pages Posted: 11 Aug 2022

Date Written: December 1, 2013

Abstract

This paper investigates the effects of discretionary fiscal policy changes on economic activity and its subcomponents in Greece in the period 2000-2011. Changes in government spending and net taxes have Keynesian effects. An increase in government consumption has the most pronounced positive effects on output growth, private consumption and non-residential investment, while it reduces residential investment. Cuts in the public investment programme crowd in private investment, but are associated negatively with the net exports ratio. Both indirect and direct tax hikes lower private consumption, private investment and output growth. Additionally, higher direct taxes, by lowering disposable income, reduce import demand, thus, improving the trade balance.

Keywords: Discretionary fiscal policy; economic growth; consumption; investment; net exports

JEL Classification: E62, O52, H30

Suggested Citation

Tagkalakis, Athanasios, Discretionary Fiscal Policy and Economic Activity in Greece (December 1, 2013). Bank of Greece Working Paper No. 169, Available at SSRN: https://ssrn.com/abstract=4184359 or http://dx.doi.org/10.2139/ssrn.4184359

Athanasios Tagkalakis (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

University of Patras

Patra
Greece

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