Advertisement

Greek Fiscal Multipliers Revisited: Government Spending Cuts vs. Tax Hikes and the Role of Public Investment Expenditure

  • Platon Monokroussos
  • Dimitrios D. Thomakos
Part of the Palgrave Macmillan Studies in Banking and Financial Institutions book series (SBFI)

Abstract

The present empirical study estimates regime-dependent fiscal multipliers for a range of key government revenue and expenditure categories in Greece. In more detail, the study employs a Multivariate Threshold Autoregressive Model (TVAR) that has a number of unique features that make it particularly suitable for our empirical analysis. The primary aim of our exercise is to: (i) check the robustness of the results presented in a number of earlier empirical studies; and (ii) take a closer look at certain important government expenditure categories: for instance, public investment outlays that could potentially play a key role in facilitating a return to positive economic growth.

Keywords

Fiscal Policy Euro Area Government Spending Fiscal Balance Fiscal Stimulus 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Afonso, A., Gomes, P., and Rother, P. (2011). “Short and Long-Run Determinants of Sovereign Debt Credit Ratings.” International Journal of Finance and Economics, 16(1), 1–15.CrossRefGoogle Scholar
  2. Auerbach, Alan J., and Gorodnichenko, Yuriy (2010). Fiscal Multipliers in Recession and Expansion, NBER Working Papers 17447.Google Scholar
  3. Auerbach, Alan J., and Gorodnichenko, Yuriy (2012). “Measuring the output responses to fiscal policy.” American Economic Journal: Economic Policy, 4(2), 1–27.Google Scholar
  4. Bachmann, Ruediger and Sims, Eric (2011). “Confidence and the transmission of government spending shocks,” manuscript.Google Scholar
  5. Balke, N.S. (2000). “Credit and Economic Activity: Credit Regimes and Nonlinear Propagation of Shocks.” Review of Economics and Statistics, 82(2), 344–349.CrossRefGoogle Scholar
  6. Batini, Nicoletta et al. (2012). Successful Austerity in the United States, Europe and Japan, IMF Working Paper, WP/12/190.Google Scholar
  7. Baum, Anja and Koester, Gerrit B. (2011). The Impact of Fiscal Policy on Economic Activity over the Business Cycle — Evidence from a Threshold VAR Analysis, Deutsche Bundesbank, Discussion Paper No 03/2011.Google Scholar
  8. Baxter, Marianne and Robert G. King (1993). “Fiscal Policy in General Equilibrium. ” The American Economic Review, 83(3), 315–334.Google Scholar
  9. Blanchard, Olivier, and Perotti, Roberto (2002). “An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output.” Quarterly Journal of Economics, 117(4), 1329–1368.CrossRefGoogle Scholar
  10. Callegari, G. (2007). “Financial Frictions and Household Debt: A New Perspective on Twin Deficits.” European Central Bank, mimeo.Google Scholar
  11. Calza and Sousa (2006), http://www.degruyter.com/view/j/snde.2006.10.2/snde.2006.10.2.1253/snde.2006.10.2.1253.xml?format=INT.
  12. Christiano, L. et al. (2009). “Fiscal Stimulus with Spending Reversals, When Is the Government Spending Multiplier Large?” Northwestern University, July.Google Scholar
  13. Cogan, John F., Cwik, Tobias, Taylor, John B., and Wieland, Volker (2010). “New Keynesian versus Old Keynesian Government Spending Multipliers.” JEDC, 34(3), 281–295.Google Scholar
  14. Cwik, T., and Wieland, V. (2009). Keynesian Government Spending Multipliers and Spillovers in the Euro Area. Center for Financial Studies Goethe-Universität Frankfurt. Available online at: http://econstor.eu/bitstream/10419/43225/1/615091520.pdf.
  15. Granger, C.W. and Terasvirta, T. (1993). Modeling Nonlinear Economic Relationships. New York: Oxford Economic Press.Google Scholar
  16. Koop, Gary (1996). “Parameter Uncertainty and Impulse Response Analysis.” Journal of Econometrics, Elsevier, 72(1–2), 135–149.CrossRefGoogle Scholar
  17. Koop, G., Resaran, M.H., and Potter, S.M. (1996). “Impulse Response Analysis in Nonlinear Multivariate Models.” Journal of Econometrics, 74, 119–147.CrossRefGoogle Scholar
  18. Leeper, E.M., Plante, M., and Traum, N. (2010). “Dynamics of Fiscal Financing in the United States.” Journal of Econometrics, 156, 304–321.CrossRefGoogle Scholar
  19. Monokroussos, Platon and Thomakos, Dimiitris (2012). “Fiscal Multipliers in deep economic recessions and the case for a two-year extension in Greece’s austerity program.” Eurobank Research, October 2012.Google Scholar
  20. Perotti, R. (2004). “Estimating the effects of fiscal policy in OECD countries,” Proceedings, Federal Reserve Bank of San Francisco.Google Scholar
  21. Ramey, V.A., and Shapiro, M.D. (1998). “Costly Capital Reallocation and the Effects of Government Spending.” Carnegie-Rochester Conference Series on Public Policy 48 (June) 145–194.Google Scholar
  22. Romer, C. and Romer, D.H. (2010). “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.” American Economic Review, 100, 763–801.CrossRefGoogle Scholar
  23. Shoag, Daniel (2010). The Impact of Government Spending Shocks: Evidence on the Multiplier from State Pension Plan Returns, Working Paper, Harvard University.Google Scholar
  24. Spilimbergo, A., Symansky, S., and Schindler, M. (2009). Fiscal Multipliers, IMF Staff Position Note SPN/09/11.Google Scholar
  25. Tsay, Ruey (1998). Testing and Modeling Multivariate Threshold Models, University of Chicago discussion papers.Google Scholar
  26. Woodford Michael (2010). “Simple Analytics of the Government Expenditure Multiplier.” Revised June 2010. American Economic Journal Macroeconomics, 3(1), 1–35.Google Scholar

Copyright information

© Platon Monokroussos and Dimitrios D. Thomakos 2015

Authors and Affiliations

  • Platon Monokroussos
  • Dimitrios D. Thomakos

There are no affiliations available

Personalised recommendations