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


  • Dimitris Papageorgiou

    () (Athens University of Economics and Business)


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.

Suggested Citation

  • Dimitris Papageorgiou, 2011. "Fiscal policy, economic activity and welfare: the case of Greece," Economics Bulletin, AccessEcon, vol. 31(3), pages 2629-2640.
  • Handle: RePEc:ebl:ecbull:eb-10-00555

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    References listed on IDEAS

    1. Angelopoulos, Konstantinos & Philippopoulos, Apostolis & Vassilatos, Vanghelis, 2009. "The social cost of rent seeking in Europe," European Journal of Political Economy, Elsevier, vol. 25(3), pages 280-299, September.
    2. Kevin J. Lansing, 1998. "Optimal Fiscal Policy in a Business Cycle Model with Public Capital," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 337-364, May.
    3. Dimitris Papageorgiou, 2009. "Macroeconomic Implications of Alternative Tax Regimes: The Case of Greece," Working Papers 97, Bank of Greece.
    4. Forni, Lorenzo & Gerali, Andrea & Pisani, Massimiliano, 2010. "The macroeconomics of fiscal consolidations in euro area countries," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1791-1812, September.
    5. 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, vol. 53(6), pages 689-714, August.
    6. Ardagna, Silvia, 2001. "Fiscal Policy Composition, Public Debt, and Economic Activity," Scholarly Articles 2579823, Harvard University Department of Economics.
    7. Kollintzas, Tryphon & Vassilatos, Vanghelis, 2000. "A small open economy model with transaction costs in foreign capital," European Economic Review, Elsevier, vol. 44(8), pages 1515-1541, August.
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    More about this item


    Fiscal Policy; Welfare;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies


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