Dr. Platon Monokroussos with his research entitled “In search of the optimal fiscal policy mix and what can be learned from the recent history of severe austerity programs” is proposed aims to produce 1-2 publishable papers on a number of topics and themes relevant to the below items.
- An updated assessment of the fiscal consolidation programs implemented in Greece over the last 5 years as well as the outlook going forward, in view of the conditionality underlying the new bailout program, the prospect of new debt relief and current expectations about the evolution of the domestic economy in the years to come.
- Based on the above analysis, the study will derive a number of policy-related implications, so as to judge the degree of success of recent fiscal policies implemented in Greece in restoring fiscal sustainability. Such an assessment would be of significant importance in the current trajectory, especially taking into consideration that Greece’s new (3rd) bailout program contains a new sizeable package of fiscal measures, primarily consisting of VAT rate hikes and new pension cuts. Although the country’s burgeoning public debt burden undoubtedly argues in favor of continuing fiscal prudence (and the provision of further generous debt relief from the official creditors), serious doubts exist about the potential effectiveness (and social fairness) of the new fiscal austerity program. This is especially in view of the domestic recessionary environment and the fact that a poor track record in fighting tax evasion increases the chances that the main brunt of the new measures will again be borne by wage earners, pensioners and other sensitive social groups. Probably, the best way to advance the aforementioned arguments is to let numbers talk: according to the latest data from the Secretariat General for Public Revenues, cumulative tax arrears in Greece totaled €80 (or c. 45% of 2014 GDP) in September 2015, with as much as €5.6bn of which being accumulated in the first nine months of this year. In view of the aforementioned, the study will make a number of proposals as regards the main characteristics of a more fair and efficient fiscal policy mix that would aim to facilitate the attainability of the agreed fiscal targets with the least possible macroeconomic and social costs. In these lines, and taking into account Greece’s idiosyncratic characteristics, the study will assess the potential implications of a generalized reduction in income tax rates for businesses (in tandem with measures to strengthen VAT and income tax compliance) and will provide some preliminary thoughts on the potential merits and drawbacks of a flat income tax rate. More generally, the study will make a number of reform proposals that would aim to simplify the tax system, increase its social fairness and efficiency and make it more conducive to attracting increased volumes of foreign direct investment.