RENT SEEKING ACTIVITIES AND AGGREGATE
ECONOMIC PERFORMANCE - THE CASE OF GREECE
Stylianos G. Gogos
Eurobank Ergasias
S.A.
Dimitris
Papageorgiou
Bank of Greece
Vanghelis
Vassilatos
Athens University
of Economics and Business
Abstract
We built upon Angelopoulos
et al. (2009) and we employ a dynamic general equilibrium model in order to
examine the interrelated role of rent seeking activities, institutions and
government policy variables, like tax rates and public spending, on Greece’s
economic performance during the last fourty years. We focus on the period
1979-2001. According to Kehoe and Prescott (2002, 2007) this period can be
characterized as a great depression. The model is the standard neoclassical
growth model augmented with a government sector and an institutional structure
which creates incentives for optimizing agents to engage in rent seeking
contests in order to extract rents from the government. This behavior creates a
cost to the economy in the form of an unproductive use of resources. Our main
findings are as follows: First, in terms of the path of key macroeconomic
variables, our model fits the data quite well. Second, by conducting a growth
accounting exercise we find that during the period 1979-1995 a non negligible
proportion of the decline of total factor productivity (TFP) can be accounted
for rent seeking activities. Third, our model produces an index which can be
interpreted as a measure of the quality of institutions in the Greek economy.
Our model based index exhibits a resemblance with the internal country risk
guide (ICRG) index which is widely used in the literature as a proxy for the
quality of a country’s institutions.
Keywords: Growth Accounting, Rent Seeking, Institutions, Dynamic General
Equilibrium.
JEL classification: E62, E32, O17, O40
Acknowledgements: We would like to thank an anonymous referee as well as the seminar
audiences at the Athens University of Economics and Business (Economic Research
Workshop, Department of Economics, March 9th 2017, Athens Greece)
and the 2016 annual meeting of the Association of Southern European Economic
Theorists (ASSET 2016, Thessaloniki, Greece, 10th – 12th
November 2016) for their fruitful comments. The views expressed in this paper
are those of the authors and do not necessarily reflect those of Eurobank and
the Bank of Greece
Correspondence:
Stylianos G. Gogos
Eurobank Ergasias
S.A.
Eurobank Economic
Analysis and Financial Markets Research
8 Othonos str., 105
57 Athens, Greece
Tel: +30 210
3718733
Email: sgogos@eurobank.gr