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Market and Political Power Interactions in Greece:An Empirical Investigation

Tryphon Kollintzas, Dimitris Papageorgiou (), Mike Tsionas and Vanghelis Vassilatos
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Tryphon Kollintzas: Athens University of Economics and Business and CEPR
Vanghelis Vassilatos: Athens University of Economics and Business

No 201606, Working Papers from Athens University Of Economics and Business, Department of Economics

Abstract: In this paper, using a dynamic panel of 21 OECD countries, we find that, unlike the other OECD countries in the sample, wage setting institutions, competition conditions, public finances and external imbalances can account for the behavior of the public sector wage premium (WPR) and the self employed taxation gap (TSL) in Greece and to a lesser extent in Spain and Portugal, in a manner that is consistent with an “insiders-outsiders society” (IOS). That is, a politicoeconomic system characterized by groups of selfish elites that enjoy market power, but at the same time coope- rate in influencing government in protecting and promoting their collective self interests. Then, we find that for Greece as well as Spain and Portugal, WPR and TSL have an adverse effect on both TFP and output growth. Finally, the effect of WPR and TSL on the business cycle (shock propagation mecha- nism) is investigated via a panel VAR analysis. Again, impulse response function analysis suggests that the shock propagation mechanism of WPR and TSL for Greece and to a lesser extent for Spain and Portugal, are quite different from the rest of the OECD countries. For example, in Greece, unlike the other OECD countries in the sample, a positive temporary shock in WPR causes TFP and output to fall and the public and current account deficits to increase. We take the TFP/output growth and the shock propagation mechanism results to provide strong evidence that Greece and to a lesser extent Spain and Portugal behave like IOS. For that matter, these results are important in order to under- stand the Greek crisis.

Keywords: Labor market institutions; Political Institutions; Public sector wage premium; Self employed taxation gap; Growth; Business cycles; Greek crisis (search for similar items in EconPapers)
JEL-codes: J44 J45 O43 O47 O57 P16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec
Date: 2016-06
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