Abstract

FISCAL POLICY, NET EXPORTS, AND THE SECTORAL COMPOSITION OF OUTPUT IN GREECE

Athanasios O. Tagkalakis

Bank of Greece

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Abstract

This paper investigates the effects of fiscal policy shocks on net export performance and the sectoral composition of output in Greece in the post 2000 period. A reduction in government spending (or a tax hike) exerts a negative response on output which reduces import demand. A cut back in government spending boosts exports through the labour cost competitiveness channel further improving net exports. Tax hikes in particular on social security contributions and other indirect taxes reduce export performance. Although real aggregate output declines following a cut in government spending, the tradable sector output responds positively, further improving net exports.

Keywords: Fiscal policy; net exports; tradable; non-tradable

JEL Classification: E62, E24, O52, H30

Acknowledgements: I would like to thank Christian Pierdzioch, Paul J. J. Welfens, Holger C. Wolf, Jürgen Wolters, two anonymous reviewers as well as Heather Gibson and Dimitris Malliaropulos for their very useful comments. The views of the paper are my own and do not necessarily reflect those of the Bank of Greece. All remaining errors are mine.

Correspondence:

Athanasios O. Tagkalakis

Bank of Greece

21 El. Venizelos Av. 10250

Athens, Greece

Email: atagkalakis@bankofgreece.gr

Tel.:0030-210-3202442