The Two Faces of Janus: Institutions, Policy Regimes and Macroeconomic Performance in Greece

The clear change in policy regime in Greece around 1974 offers an opportunity to assess the extent to which economic performance depends on institutional underpinnings. For twenty years up to 1974, Greece enjoyed rapid growth, high investment and low inflation; during the next twenty years, growth and investment collapsed and inflation became high and persistent.

I describe the political background to such clear institutional change, and the nature of the two economic regimes: the first providing coordination and commitment mechanisms to sustain adequate returns for high investment, the second failing to do so. The same change in political climate after 1974 raised public sector deficits and debt, fuelling a trade deficit and monetary expansion. Entry to the EC did not cause the economic slowdown in Greece, but transfers from the EC did mask the underlying problem, delaying necessary adjustment. Recent attempts to reverse Greece’s fortunes are in the right direction but as yet inadequate.

Economic Policy

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On Budgetary Policies, Growth, and External Deficits in an Interdependent World

We investigate the effects of budgetary policies in a two-country model of overlapping generations and endogenous growth. In the presence of capital mobility, endogenous growth rates are equalized, but output levels do not converge. A worldwide rise in the public debt to GDP ratio or the share of government consumption reduces savings and growth. A relative rise in one country’s debt to GDP ratio or its GDP share of government consumption results in a fall in external assets and its relative savings rate. In the short run, the fall in the savings rate is higher, and the country experiences higher current account deficits as a percentage of GDP.

Journal of the Japanese and International Economies (with Rick van der Ploeg)

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