 Fiscal policy with an informal sectorHarris Dellas (), Dimitris Malliaropulos, Dimitris Papageorgiou and Evangelia Vourvachaki Journal of Economic Dynamics and Control, 2024, vol. 160, issue C Abstract: On the eve of its sovereign debt crisis in 2010, Greece initiated a large fiscal consolidation program. By 2015, official GDP had fallen to 26% below its 2009 level. We feed the actual fiscal package in the DSGE model of the Bank of Greece, augmented to include an informal sector, to assess the contribution of the fiscal package as well as of its individual tax and spending components. The model explains the bulk of the cumulative reduction in economic activity, and attributes roughly half of the decline to government spending measures and the other half to tax increases. The interaction of a large fiscal adjustment with a large and elastic informal sector proved lethal. Our model predicts that had growth in shadow activities been contained, the vicious circle between fiscal adjustment, tax revenue and macroeconomic activity could have been significantly mitigated, resulting in a considerably milder downturn. Keywords: Greece; Informal economy; Fiscal consolidation; Fiscal multipliers (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:160:y:2024:i:c:s0165188924000125 DOI: 10.1016/j.jedc.2024.104820 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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