اصلاحات سیاست مالی در تعادل عمومی: مورد یونان

This paper quantifies the macroeconomic and welfare implications of (i) changes in the tax-spending mix and (ii) debt consolidation policies. The setup is a neoclassical growth model augmented with a relatively rich public sector. The model is calibrated to the Greek economy. The results suggest that, if the goal of fiscal policy is to stimulate the economy and increase welfare by changing the tax mix, then it should decrease the tax rate on labour income and increase the consumption tax rate. While higher public investment spending is good for the economy, it is lower public consumption spending that is found to be expansionary. The results also suggest that both tax- and expenditure-based debt consolidation policies lead to worse economic activity in the short run, but they have strong beneficial effects in the medium and long run when the consolidation period finishes. Highlights ► We examine the general equilibrium effects of fiscal policy reforms in Greece. ► Lower income taxes met by higher consumption taxes increase output and welfare. ► The effects of higher government spending depend on the type of spending. ► Debt consolidation policies hurt the economy in the short run. ► Debt consolidation policies stimulate the economy in the medium and long run.

This paper employs a neoclassical growth model augmented with a relatively rich public sector to examine the general equilibrium implications of fiscal policy reforms in Greece. The approach of the paper can be summarised as follows. First, we calibrate the model to data for the Greek economy. In turn, departing from the calibrated pre-reform economy, we study the effects of altering the tax-spending mix; this mix is considered to be one of key factors of potential growth. We then examine the effects of various debt consolidation policies based on tax increases or spending cuts. We study the implications of such fiscal policy reforms for key macroeconomic variables (including growth and budget deficits) as well as for social welfare. The discretionary fiscal stimulus adopted by many countries during the 2008–2009 world crisis, being followed by a dramatic reversal in policy as the same countries are now trying to stabilize their public finances, has led to a renewed interest in the effects of fiscal policy.1 Issues pertaining to how to reduce public debt, as well as how to stimulate the economy, take on particular importance in Greece, where the crisis has exposed the weak fiscal position and has raised serious doubts about government’s solvency. A significant rise in public spending and a sharp fall in tax revenue pushed the Greek government deficit to 15.5% of GDP in 2009, when public debt reached 127% of GDP. It has risen to 149% in 2011 due to a vicious cycle of deficits and recession. The strong deterioration in the fiscal position made international markets increasingly concerned about the ability of Greece to service its maturing debt obligations, leading to a sharp rise in spreads on government bonds since the end of 2009. In May 2010, Greece narrowly avoided default with the help of a financing package of a total amount of €110 billion from the euro area member states and the IMF, in exchange for tough budget and economic overhauls. A new support package was agreed in July 2011 although its terms are still open.2 Nowadays, Greece is facing a double challenge: On one hand, it has to achieve a sustained and sizable fiscal consolidation so as to restore public finance sustainability and market confidence. On the other hand, it is important for Greece, as well as for other countries trying to stabilize their public finances, to implement policy reforms that raise potential growth and thus help the debt dynamics. In this context, fiscal reforms involving changes in the tax-spending policy mix have emerged as a new focus for the European policymakers (see e.g. European Commission, 2010a and European Commission, 2010b). In Greece, the tax-spending mix appears to be quite different from that in the euro area. Looking at the recent composition of distorting tax rates, a comparison of Greece with the euro area, using for instance Eurostat’s implicit or effective tax rates, reveals that the tax rate on labour income is 33.8% in Greece, close to the euro area average level of 34%. On the other hand, the effective tax rates on capital income and consumption are much lower in Greece than in the euro area. For instance, the effective tax rate on consumption of 15.4% is well below the euro area average rate of 21% and indeed one of the lowest in the euro area.3,4 Concerning the composition of the main types of government spending (public consumption, investment and transfers), the share of output that goes for public investment is 3% in Greece, slightly above the euro area average of 2.6%. In contrast, government consumption and transfer payments as shares of output in Greece are respectively 16.5% and 20.5%, well below the euro area averages, which are 20% and 23.5%, respectively.5 In light of the above differences with the euro area as well as the required fiscal adjustment, this paper studies the quantitative macroeconomic and welfare implications of fiscal policy reforms in Greece. Despite the need for policy reforms, applied research based on micro-founded dynamic general equilibrium models is limited in Greece.6 The present paper tries to fill this gap. But the paper is more than a country study. It also contributes to the literature on the effects of policy reforms.7 In particular, we consider the effects of: (i) changes in the composition of distorting tax rates; (ii) changes in public consumption or public investment met by adjustments in one of the distorting tax rates; (iii) various debt consolidation strategies, where, by debt consolidation, we mean a reduction in public debt to an exogenously set target within a given period of time achieved by tax-based or spending-based policies. All reforms satisfy the government’s intertemporal budget constraint. We explore how these reforms affect the economy both in long-run and along the transition path to a new post-reform steady state. We also provide a quantitative assessment of the welfare effects associated with alternative policy reforms. When we depart from the calibrated pre-reform economy, our main results are as follows. First, if the goal of fiscal policy is to stimulate the economy both in the short and long run by changing the tax mix, then it should decrease the tax rate on labour income and increase the consumption tax rate. Second, the effects of higher government spending depend on the type of spending and the policy instrument used to ensure fiscal solvency. In particular, an increase in public investment, financed by higher consumption taxes, leads to an expansion of output both along the dynamic path and at steady state. The opposite applies to public consumption: an increase in the latter, when financed by higher distorting taxes, has a negative effect on output both in the short and long run. Thus, fiscal contractions, in the form of lower public consumption, are expansionary. Nevertheless, rises in both government consumption and investment lead to a welfare loss, and this is regardless of the policy instrument used to maintain fiscal solvency. Third, both tax- and expenditure-based debt consolidation policies hurt the economy in the short run, but have beneficial effects in the medium and long run. The reason behind the positive medium- and long-run effects is the improvement in public finances that allows the government to reduce tax rates, and/or to increase spending, after the debt target is achieved and consolidation finishes. The policy instrument that causes the smallest fall in the level of output during the consolidation period is public consumption spending, being followed by the consumption tax rate. In terms of lifetime welfare, the best ways of reducing the public debt is via adjustments in government spending or capital tax rates. The rest of the paper is as follows. Section 2 presents the model. Section 3 discusses calibration, the long run solution and transition dynamics. Section 4 studies tax-spending reforms. Section 5 examines debt consolidation policies. Section 6 concludes.

We employed a neoclassical growth model augmented with an enriched public sector to examine the macroeconomic implications of fiscal reforms in Greece. First, we studied the effects of changes in the tax-spending mix, and, second, the effects of various debt consolidation strategies. Focusing on the case in which lump-sum policy instruments are not available, our results show that output and welfare gains can be obtained from tax reforms that reduce the tax rate on labour income and increase consumption taxes in an intertemporally revenue neutral manner. The results further suggest that, while higher public investment is good for the macroeconomy, it is lower public consumption that stimulates the economy and promotes welfare. Finally, we showed that both revenue- and expenditure-based debt consolidation policies have contractionary effects on economic activity during the debt stabilization period, but they have positive effects in the medium and long run. Our simulations suggest that steady-state output increases by 0.39–1.1%, depending on the policy instrument that is used to stabilize public debt. Debt consolidations via reductions in public consumption spending have the smallest negative effect on output during the debt stabilization period, while at the same time they lead to the largest reduction in the steady-state level of debt-to-output ratio. We acknowledge that the model used is a stylised one, assuming away a number of real and nominal frictions that are typically found to be important in the data (see e.g. Christiano et al. (2005)). Adding such features is an interesting extension. Nonetheless, given that the output and welfare magnitudes stemming from our analysis are non-trivial, our findings highlight the importance of the choice of tax-spending structure in policy design and provide useful insights that can, at the very least, help in understanding fiscal policy reforms.29 In future work it would be interesting to extend our analysis to the case of a semi small open economy facing risk premia fuelled by insolvency problems and poor institutions. This would allow us to study the effects of alternative fiscal policy reforms on external imbalances and international competitiveness.