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Fiscal policy reforms in general equilibrium: The case of Greece

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  • Papageorgiou, Dimitris

Abstract

This paper quantifies the macroeconomic and welfare implications of (i) changes in the tax-spending mix and (ii) debt consolidation policies. The setup is a neoclassical growth model augmented with a relatively rich public sector. The model is calibrated to the Greek economy. The results suggest that, if the goal of fiscal policy is to stimulate the economy and increase welfare by changing the tax mix, then it should decrease the tax rate on labour income and increase the consumption tax rate. While higher public investment spending is good for the economy, it is lower public consumption spending that is found to be expansionary. The results also suggest that both tax- and expenditure-based debt consolidation policies lead to worse economic activity in the short run, but they have strong beneficial effects in the medium and long run when the consolidation period finishes.

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  • Papageorgiou, Dimitris, 2012. "Fiscal policy reforms in general equilibrium: The case of Greece," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 504-522.
  • Handle: RePEc:eee:jmacro:v:34:y:2012:i:2:p:504-522
    DOI: 10.1016/j.jmacro.2011.12.008
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    Citations

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    Cited by:

    1. Dimitris Papageorgiou, 2014. "BoGGEM: a dynamic stochastic general equilibrium model for policy simulations," Working Papers 182, Bank of Greece.
    2. George Economides & Dimitris Papageorgiou & Apostolis Philippopoulos & Vanghelis Vassilatos, 2013. "Smaller Public Sectors in the Euro Area: Aggregate and Distributional Implications," CESifo Economic Studies, CESifo, vol. 59(3), pages 536-558, September.
    3. Maebayashi, Noritaka & Hori, Takeo & Futagami, Koichi, 2017. "Dynamic Analysis Of Reductions In Public Debt In An Endogenous Growth Model With Public Capital," Macroeconomic Dynamics, Cambridge University Press, vol. 21(06), pages 1454-1483, September.
    4. Gogos, Stylianos G. & Mylonidis, Nikolaos & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2014. "1979–2001: A Greek great depression through the lens of neoclassical growth theory," Economic Modelling, Elsevier, vol. 36(C), pages 316-331.
    5. repec:eee:poleco:v:48:y:2017:i:c:p:54-73 is not listed on IDEAS
    6. Kollintzas, Tryphon & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2012. "An Explanation of the Greek Crisis: "The Insiders - Outsiders Society"," CEPR Discussion Papers 8996, C.E.P.R. Discussion Papers.
    7. Keiichi Morimoto & Takeo Hori & Noritaka Maebayashi & Koichi Futagami, 2013. "Fiscal Sustainability, Macroeconomic Stability, and Welfare under Fiscal Discipline in a Small Open Economy," Discussion Papers in Economics and Business 13-07, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    8. Koichi Futagami & Kunihiko Konishi, 2018. "Dynamic Analysis of Budget Policy Rules in Japan," Bank of Japan Working Paper Series 18-E-3, Bank of Japan.
    9. Dimitris Papageorgiou & Evangelia Vourvachaki, 2015. "The Macroeconomic Impact of Structural Reforms in Product and Labour Markets: Trade-Offs and Complementarities," Working Papers 197, Bank of Greece.
    10. Apostolis Philippopoulos & Petros Varthalitis & Vanghelis Vassilatos, 2013. "Optimal Fiscal Action in an Economy with Sovereign Premia and without Monetary Independence: An Application to Italy," CESifo Working Paper Series 4199, CESifo Group Munich.
    11. repec:eme:jfeppp:jfep-07-2016-0051 is not listed on IDEAS

    More about this item

    Keywords

    Fiscal policy; Debt consolidation; Welfare; General equilibrium;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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