GREECE: GETTING OUT OF THE RECESSION

Art 1923  Σάββατο 19 Nοεμβρίου 2016

Summary The Greek government has agreed to a new round of fiscal austerity measures, consisting of a sharp increase in income and property taxes and further reductions in pensions and other welfare-related expenditures. In our analysis, policies aimed at reducing the government deficit will cause a recession, unless other components of aggregate demand increase enough to more than offset the negative impact of fiscal austerity on output and employment. We argue that the troika’s strategy of increasing net exports to restart the economy has failed, partly because of the low impact of falling wages on prices, partly because of low trade elasticities with respect to prices, and partly because of a sharp reduction in transport services, which used to be Greece’s biggest export industry. A policy initiative to boost aggregate demand is urgently needed. We propose a fiscal policy alternative based on innovative financing mechanisms, which could trigger an increase in confidence and encourage renewed private investment.

https://www.scribd.com/document/331618509/levi-institute-Greece-analysis-2016

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