RENT-SEEKING COMPETITION FROM STATE COFFERS IN GREECE: A CALIBRATED DSGE MODEL
Konstantinos Angelopoulos
University of Glasgow
Sophia Dimelis
Athens University of Economics and Business
Apostolis Philippopoulos
Athens University of Economics and Business , CESifo
and Visiting Scholar at the Bank of Greece
Vanghelis Vassilatos
Athens University of Economics and Business
ABSTRACT
We incorporate an uncoordinated redistributive struggle for extra fiscal privileges and favors into an otherwise standard dynamic stochastic general equilibrium model. Our aim is to quantify the extent of rent seeking and its macroeconomic implications. The model is calibrated to Greek quarterly data over 1961:1-2005:4. Our work is motivated by the rich and distorting tax-spending system in Greece, as well as the common belief that interest groups compete with each other for fiscal privileges at the expense of the general public interest. We find that (i) the introduction of rent seeking moves the model in the right direction vis-à-vis the data (ii) an important fraction of GDP is extracted by rent seekers (iii) there can be substantial welfare gains from reducing rent seeking activities.
Keywords: Fiscal policy, rent seeking, welfare.
JEL classification: E62, E32, O17.
Acknowledgements: We are grateful to Harris Dellas, Arye Hillman and Evi Pappa for discussions and comments. Dimitris Papageorgiou has provided excellent research assistantship. We have benefited from discussions with Marios Angeletos, George Economides, Chrissi Giannitsarou, Pantelis Kammas, Jim Malley, Jacques Melitz, Heikki Oksanen and Harald Uhlig, as well as seminar participants at CESifo in Munich and the Universities of Bern, Herriot-Watt and Stirling. The views of the paper do not necessarily reflect those of the Bank of Greece.
Correspondence:
Apostolis Philippopoulos
Department of Economics,
Athens University of Economics and Business
76 Patission Street, Athens 10434,Greece
Tel: +30-210-8203357
Fax: +30-210-8203301
Email: aphil@aueb.gr