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Market and political power interactions in Greece: A theory

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  • Kollintzas, Tryphon
  • Papageorgiou, Dimitris
  • Vassilatos, Vanghelis
Abstract
In this paper, we develop a neoclassical growth model of market and political power interactions that captures the main features of the economic and political system of Greece and explains the weak economic growth of Greece in the last forty years. The model incorporates the insiders-outsiders labor market structure and the concept of an elite government. Outsiders form a group of workers that supply labor to a competitive private sector. And, insiders form a group of workers that enjoy market power in supplying labor to the public sector and influence the policy decisions of government, including those that affect the development and maintenance of public sector infrastructures. This leads to labor misallocation and inefficient fiscal policies. Thus, even though expanding public sector output has a positive effect on growth, eventually this is counterbalanced by the labor misallocation and inefficient tax policy outcomes leading to a growth reversal phenomenon. The model proposed in this paper may be applicable to other countries that have a similar politicoeconomic structure with Greece, namely other Southern European countries.

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  • Kollintzas, Tryphon & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2018. "Market and political power interactions in Greece: A theory," European Journal of Political Economy, Elsevier, vol. 53(C), pages 59-83.
    • Handle: RePEc:eee:poleco:v:53:y:2018:i:c:p:59-83
    DOI: 10.1016/j.ejpoleco.2017.07.003
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    Cited by:

    1. Liagouras, George, 2018. "On the Edge of the South European Model: Familism, Business and State in Greece," OSF Preprints 8eqmb, Center for Open Science.
    2. Economides, George & Papageorgiou, Dmitris & Philippopoulos, Apostolis, 2020. "Macroeconomic policy lessons from Greece," LSE Research Online Documents on Economics 107155, London School of Economics and Political Science, LSE Library.
    3. George Economides & Dimitris Papageorgiou & Apostolis Philippopoulos, 2020. "Macroeconomic Policy Lessons for Greece from the Debt Crisis," CESifo Working Paper Series 8188, CESifo.
    4. George Economides & Dimitris Papageorgiou & Apostolis Philippopoulos, 2021. "Austerity, Assistance and Institutions: Lessons from the Greek Sovereign Debt Crisis," Open Economies Review, Springer, vol. 32(3), pages 435-478, July.
    5. Vasiliki Dimakopoulou & George Economides & Apostolis Philippopoulos, 2021. "The ECB's Policy, the Recovery Fund and the Importance of Trust: The Case of Greece," CESifo Working Paper Series 9371, CESifo.
    6. Kollintzas, Tryphon & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2018. "Market and political power interactions in Greece: A theory," European Journal of Political Economy, Elsevier, vol. 53(C), pages 59-83.
    7. Tryphon Kollintzas & Dimitris Papageorgiou & Efthymios Tsionas & Vanghelis Vassilatos, 2018. "Market and political power interactions in Greece: an empirical investigation," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-43, December.
    8. Masuch, Klaus & Anderton, Robert & Setzer, Ralph & Benalal, Nicholai, 2018. "Structural policies in the euro area," Occasional Paper Series 210, European Central Bank.
    9. Maria‐Eleni K. Agoraki & Stella Kardara & Tryphon Kollintzas & Georgios P. Kouretas, 2023. "Debt‐to‐GDP changes and the great recession: European Periphery versus European Core," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3299-3331, July.
    10. Tryphon Kollintzas & Dimitris Papageorgiou & Vanghelis Vassilatos, 2021. "Implications of market and political power interactions for growth and the business cycle I: private sector equilibrium," Working Papers 288, Bank of Greece.

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    More about this item

    Keywords

    Insiders - outsiders; Politicoeconomic equilibrium; Taxation; Fiscal policy; Growth; Greek crisis;
    All these keywords.

    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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