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Discretionary fiscal policy and economic activity in Greece

  • Athanasios O. Tagkalakis

    ()

    (Bank of Greece)

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.

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Paper provided by Bank of Greece in its series Working Papers with number 169.

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Length: 69
Date of creation: Dec 2013
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Handle: RePEc:bog:wpaper:169
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