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Fiscal adjustment and debt sustainability: Greece 2010-2016 and beyond

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  • Nicholas E. Karavitis

    (Panteion University)

Abstract

This paper reviews the fiscal developments that led Greece from a successful con-vergence process and the adoption of the Euro to an unprecedented prolonged re-cession. Analysis of all fiscal aggregates reveals the policies behind the sovereign crisis, both on the expenditure and the revenue side. We employ a simple macrostatic model to identify the impact of fiscal policies on the economy through the fiscal multipliers, especially during the adjustment programmes. We attempt to explore the extent to which fiscal adjustment may have been self-defeating by developing ex post adjustment scenarios. Following this, we turn to testing debt sustainability in the long run in an interest rate sensitive environment. This is done based on a set of several varying assumptions regarding growth, fiscal performance and debt reprofiling. Analysis of the resulting scenarios points out the risks surrounding debt sustainability and draws the broad lines of future fiscal policies.

Suggested Citation

  • Nicholas E. Karavitis, 2018. "Fiscal adjustment and debt sustainability: Greece 2010-2016 and beyond," Working Papers 245, Bank of Greece.
    • Handle: RePEc:bog:wpaper:245
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    References listed on IDEAS

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    More about this item

    Keywords

    Greek Crisis; Fiscal Adjustment; Fiscal Multipliers; Debt Sustainability;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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