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The Effect of Fiscal Policy on Output in Times of Crisis and Prosperity: Historical Evidence From Greece

George Chouliarakis, Tadeusz Gwiazdowski and Sophia Lazaretou

Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester

Abstract: Empirical analysis of a unique and unexplored historical dataset for Greece provides new insight into the state and regime dependence of the government spending multiplier. Greece fought numerous wars between the establishment of the modern Greek state and the outbreak of World War II. Using data for both armament and disarmament, and controlling for states and regimes in the economy, our empirical findings suggest that the exchange rate regime, the presence of exchange controls, and the business cycle all have a significant impact on the size of the government spending multiplier. However, analysing the interaction of these states and regimes turns out to be crucial to removing the bias from our multiplier estimates. In particular, regardless of other states and regimes in the economy, the multiplier is estimated to be zero during good times. In contrast, it is well above unity when spending decreases in a recession.

Pages: 31 pages
Date: 2016
New Economics Papers: this item is included in nep-his and nep-opm
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