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Discretionary fiscal policy and economic activity in Greece

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  • Athanasios O. Tagkalakis

    () (Bank of Greece)

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. Additionally, higher direct taxes, by lowering disposable income, reduce import demand, thus, improving the trade balance.

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  • Athanasios O. Tagkalakis, 2013. "Discretionary fiscal policy and economic activity in Greece," Working Papers 169, Bank of Greece.
  • Handle: RePEc:bog:wpaper:169
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    More about this item

    Keywords

    : Discretionary fiscal policy; economic growth; consumption; investment; net exports;
    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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