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ON THE MIX OF GOVERNMENT EXPENDITURE AND TAX REVENUES

Published online by Cambridge University Press:  09 March 2020

George Economides ,
Hyun Park ,
Apostolis Philippopoulos  and
Stelios Sakkas
George Economides
Affiliation:
Athens University of Economics and Business, and CESifo
Hyun Park
Affiliation:
Kyung Hee University
Apostolis Philippopoulos*
Affiliation:
Athens University of Economics and Business, and CESifo
Stelios Sakkas
Affiliation:
European Commission, Joint Research Centre
*
Address correspondence to: Apostolis Philippopoulos, Department of Economics, Athens University of Economics and Business, 76 Patission street, Athens10434, Greece, Phone: +30-210-8203357; e-mail: aphil@aueb.gr.
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Abstract

We study the implications of changes in the mix of taxes, public spending, and public finance in the Eurozone. In so doing, we build a general equilibrium OLG model that naturally incorporates all the main categories of public spending and taxes. We focus on the medium- and long-run implications of permanent reforms in the actual policy mix. When we depart from 2008, the best way out of the recession would be an increase in public spending on education and health and in turn cuts in distorting taxes including social security contributions. When we depart from the year 2017, which features a higher inherited public debt, public debt consolidation becomes the superior reform to the extent that the focus is on the medium and long run.

Keywords

Fiscal ReformsPublic Finance
Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 1 , January 2022 , pp. 1 - 48
Copyright
© Cambridge University Press 2020

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Footnotes

We thank the Associate Editor and two referees for constructive suggestions and criticisms. We also thank Kostas Angelopoulos, David de la Croix, Saqib Jafarey, Jim Malley, Vassilis Monastiriotis, and Waltraud Schelkle for comments and discussions. We have benefited from discussions with Harris Dellas, Vangelis Dioikitopoulos, Dimitris Papageorgiou, Rana Sajedi, and Petros Varthalitis, as well as from comments by seminar participants at the Research Workshop in European Studies at the European Institute of the LSE. Any errors are ours. Stelios Sakkas wishes to clarify that the views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.

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