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Greece: Getting Out of the Recession

Author

Listed:
  • Dimitri B. Papadimitriou
  • Michalis Nikiforos
  • Gennaro Zezza

Abstract

The Greek government has agreed to a new round of fiscal austerity measures consisting of a sharp increase in taxes on income and property and further reductions in pension and other welfare-related expenditures. Based on our model of the Greek economy, policies aimed at reducing the government deficit will cause a recession, unless other components of aggregate demand increase enough to more than offset the negative impact of fiscal austerity on output and employment. In this report we argue that the troika strategy of increasing net exports to restart the economy has failed, partly because of the low impact of falling wages on prices, partly because of the low trade elasticities with respect to prices, and partly because of other events that caused a sharp reduction in transport services, which used to be Greece’s largest export sector. A policy initiative to boost aggregate demand is urgently needed, now more than ever. We propose a fiscal policy alternative based on innovative financing mechanisms, which could trigger a boost in confidence that would encourage renewed private investment.

Suggested Citation

  • Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2016. "Greece: Getting Out of the Recession," Economics Strategic Analysis Archive sa_gr_9_16, Levy Economics Institute.
  • Handle: RePEc:lev:levysa:sa_gr_9_16
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    1. Michalis Nikiforos & Dimitri B. Papadimitriou & Gennaro Zezza, 2015. "The Greek Public Debt Problem," Economics Policy Note Archive 15-2, Levy Economics Institute.
    2. Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2014. "Prospects and Policies for the Greek Economy," Economics Strategic Analysis Archive sa_feb_14, Levy Economics Institute.
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