Fiscal policy reforms in general equilibrium: The case of Greece |
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| Authors: | Dimitris Papageorgiou |
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| Institution: | 1. Department of Statistics and Actuarial-Financial Mathematics, University of the Aegean, Samos, 83200, Greece;2. Faculty of Actuarial Science and Insurance, Sir John Cass Business School, City University, 106 Bunhill Row, London EC1Y 8TZ, UK;1. Department of Preventive and Community Dentistry, Dental School, University of Athens, Athens, Greece;1. Faculty of Business and Economics, University of Lausanne, CH-1015 Lausanne, Switzerland;2. Erasmus School of Economics, Erasmus University Rotterdam, 3000 DR Rotterdam, The Netherlands;3. Tinbergen Institute, Amsterdam, The Netherlands;4. School of Economics and Regional Studies, University of Macedonia, Egnatia 156, Thessaloniki 54636, Greece;1. LEMMA, Université Panthéon-Assas, France;2. Aarhus University, Denmark;1. Basque Centre for Climate Change – BC3, 48940 Leioa, Spain;2. UMR EPOC CNRS 5805, University of Bordeaux, 33615 Pessac, France;3. Department of Econometrics and Statistics, University of the Basque Country, 48015 Bilbao, Spain;4. IKERBASQUE, Basque Foundation for Science, 48013 Bilbao, Spain |
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| Abstract: | This paper quantifies the macroeconomic and welfare implications of (i) changes in the tax-spending mix and (ii) debt consolidation policies. The setup is a neoclassical growth model augmented with a relatively rich public sector. The model is calibrated to the Greek economy. The results suggest that, if the goal of fiscal policy is to stimulate the economy and increase welfare by changing the tax mix, then it should decrease the tax rate on labour income and increase the consumption tax rate. While higher public investment spending is good for the economy, it is lower public consumption spending that is found to be expansionary. The results also suggest that both tax- and expenditure-based debt consolidation policies lead to worse economic activity in the short run, but they have strong beneficial effects in the medium and long run when the consolidation period finishes. |
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