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Fiscal policy, economic activity and welfare: the case of Greece

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  • Dimitris Papageorgiou

    ()
    (Athens University of Economics and Business)

Abstract

This paper examines how changes in different fiscal (tax-spending) policy instruments affect economic activity and social welfare in the Greek economy. The setup is a neoclassical growth model augmented with a public sector. The government's spending instruments include public consumption, investment and lump-sum transfers; on the revenue side, labour, capital and consumption taxes are employed. The results suggest that changes in the tax rates on labour and capital income have quantitatively significant effects on key macroeconomic variables, as well as on social welfare. When financed by distorting taxes, increases in government consumption hurt both output and welfare. To the contrary, a rise in public investment, when financed by consumption or labour income taxes, can stimulate the economy and increase welfare in the long run.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P236.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 3 ()
Pages: 2629-2640

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Handle: RePEc:ebl:ecbull:eb-10-00555

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Keywords: Fiscal Policy; Welfare;

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  1. Forni, Lorenzo & Gerali, Andrea & Pisani, Massimiliano, 2010. "The macroeconomics of fiscal consolidations in euro area countries," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(9), pages 1791-1812, September.
  2. Malley, Jim & Philippopoulos, Apostolis & Woitek, Ulrich, 2009. "To react or not? Technology shocks, fiscal policy and welfare in the EU-3," European Economic Review, Elsevier, Elsevier, vol. 53(6), pages 689-714, August.
  3. Ardagna, Silvia, 2001. "Fiscal Policy Composition, Public Debt, and Economic Activity," Scholarly Articles 2579823, Harvard University Department of Economics.
  4. Dimitris Papageorgiou, 2009. "Macroeconomic Implications of Alternative Tax Regimes: The Case of Greece," Working Papers, Bank of Greece 97, Bank of Greece.
  5. Kevin J. Lansing, 1998. "Optimal Fiscal Policy in a Business Cycle Model with Public Capital," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(2), pages 337-364, May.
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