The curious case of Greece: The impact of fiscal policy shocks on key macroeconomic variables. A VAR based approach.

<p>For years, the Vector Autoregressive approach has been the main tool for monetary economics and macroeconomic researchers around the world. Leading central banking figures, academics, and modern economic think tanks have used the approach to determine the effects of interest rate shocks on basic macroeconomic variables such as GDP, industrial production and unemployment rate. Shocking policy variables, such as interest rates or long term bond rates have given economists the ability to run reliable forecasts. The last 20 years have seen a turn in the use of the VAR approach on fiscal policy as well. Even though, in general, previous work has shown the ineffectiveness of fiscal policy towards controlling or affecting main macro variables, the following paper will analyze how fiscal policy shocks can indeed change essential macroeconomic variables using the VAR method. The country in focus is Greece, whose economy has been hampered and tormented by a deep debt crisis and subsequent strict austerity measures. The absence of independent, sovereign monetary policy after the replacement of the drachma with the Euro on January 1st 2002 has left the Greek government powerless with fiscal policy as its only weapon to get out of its long recession. The following sections of this paper will show how a shock in the country's government spending has the desired Neo-Keynesian effects, but only in the very short term. Interestingly, an unexpected increase in tax revenue has the most profound long term effect in decreasing the country's unemployment rate while giving a long term, permanent push on exports. Increasing efficiency in tax collection and not necessarily tax rates, can be a major catalyst for Greece, a country with chronic tax evasion and tax avoidance issues.</p>

Name thesis:degree_name

Master of Science in International and Development Economics (MSIDEC)

Level thesis:degree_level

Thesis

Discipline thesis:degree_discipline

Economics

Year dc:date.available

2015

Author dc:creator

• Kaliontzakis, Manny

Contributors dc:contributor

• Sunny Wong

• VAR
• Greece
• Fiscal policy
• government spending
• tax revenue
• Econometrics
• International Economics
• Macroeconomics
• Public Economics

Repository record dc:identifier

https://repository.usfca.edu/thes/134

OAI identifier oai:identifier

oai:repository.usfca.edu:thes-1151