Balancing The Budget Through Revenue or Spending Adjustments? The Case of Greece

다국어 초록 (Multilingual Abstract)

This paper examines the solvency of the Greek fiscal policy. Employing a cointegrated VAR as a benchmark, evidence of a long-run link between revenues and spending is presented, although intertemporal solvency is violated. Utilizing Granger-causality tests, a test for fiscal adjustment neutrality and Generalized Impulse Responses, this paper provides evidence in favor of the ‘tax and spend’ hypothesis for Greece. Additionally, the empirical evidence indicates that fiscal adjustment should take place through spending rather than revenue adjustment.

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