Abstract

THE OUTPUT EFFECTS OF SYSTEMATIC AND

NON-SYSTEMATIC FISCAL POLICY CHANGES IN GREECE

Athanasios O. Tagkalakis

Bank of Greece

Abstract

This paper investigates the effects of systematic (or rules-based) and non-systematic (exogenous) fiscal policy changes on output growth in Greece, focusing also on the composition of fiscal policy. Exogenous fiscal policy changes are associated with Keynesian responses (with the exception of net transfers and VAT). Although systematic government spending cuts aiming at improving fiscal performance tend to have a Keynesian effect on output growth in the short term, they ultimately result in a non-Keynesian response, raising output growth. Systematic direct tax hikes, aiming at correcting fiscal imbalances, can have positive medium to long term growth effects.

Keywords: Fiscal rules, output growth, exogenous, systematic policy responses

JEL Classification: E6, H6, H3

Acknowledgments: I would like to thank John P. Conley, Toshihiko Mukoyama, and Heather Gibson as well as three anonymous reviewers for their useful comments and suggestions. 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 Ave.

10250 Athens, Greece

Tel.:0030-210-3202442

Fax: 0030-210-3232025

Email: atagkalakis@bankofgreece.gr