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Discretionary fiscal policy and economic activity in Greece

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  • Athanasios Tagkalakis

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. However, higher direct taxes by lowering disposable income they reduce import demand, thus, improving the trade balance. Copyright Springer Science+Business Media New York 2014

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  • Athanasios Tagkalakis, 2014. "Discretionary fiscal policy and economic activity in Greece," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(4), pages 687-712, November.
  • Handle: RePEc:kap:empiri:v:41:y:2014:i:4:p:687-712
    DOI: 10.1007/s10663-013-9232-0
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    More about this item

    Keywords

    Discretionary fiscal policy; Economic growth; Consumption; Investment; Net exports; E62; O52; H30;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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