A fiscal policy model of the Greek economy: A disaggregated closed system approach.

The basic aim of this work is twofold. Firstly, to build a short-term disaggregated fully closed econometric model appropriate to simulate the functioning of an economy passing the intermediate stage of development like today's Greece and to analyse the effects of economic and particularly of fiscal policy. Secondly, to provide in the case of Greece a quantification of the effects of the various fiscal policy instruments upon certain aims of economic policy and key endogenous variables. The main conclusion of the study is that fiscal policy can be actively used in Greece for demand management purposes. As regards the attainment of certain other policy aims though, such as economic development, balance of payments equilibrium, price stability, etc., the results show that fiscal policy instruments are in general incompatible. Accordingly, the use of fiscal policy alone does not appear adequate to deal with the complex economic problems of the real world, and a combination of fiscal, monetary and incomes policies would seem essential for the achievement of this end. Further the results show that the impact of fiscal policy on investment is rather limited. By contrast, fiscal policy is very powerful in affecting income distribution. Monetary policy appears to be a major determinant of investment behaviour. The various fiscal policy instruments used have different effects upon the endogenous variables of the system, and particularly affect the rate of price inflation and the rate of growth of real income both as regards magnitude and direction. This implies that instead of a unique Phillips curve, there exists a family of Phillips curves, equal to the number of policy instruments used, each of which has its own shape and/or position.