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BPEA | Fall 2015

Greek budget realities: No easy options

Christopher L. House and
Christopher House headshot
Christopher L. House Professor of Economics and Director of Graduate Studies - University of Michigan
Linda L. Tesar
Linda Tesar headshot
Linda L. Tesar Alan V. Deardorff Collegiate Professor of Economics - University of Michigan

Fall 2015


In “Greek Budget Realities: No Easy Options,” Christopher L. House and Linda L. Tesar of the University of Michigan find that in the baseline case calibrated to the Greek economy, all of the budget measures produce sizable declines in output in both the short- and long-run, and even if delayed, it will merely cause greater economic hardship in the long-run.

MEDIA SUMMARY

Forced austerity truly painful for Greece; No easy solutions
Will cause large short- and long-term drags on growth

The size of fiscal adjustments required for Greece to meet its full debt obligations will be very large and very painful — and are even larger when taking into account how much the tax base will react (elasticity), and are substantially more costly given that Greece is a small open economy that is integrated with the larger European economy. In “Greek Budget Realities: No Easy Options,” Christopher L. House and Linda L. Tesar of the University of Michigan find that in the baseline case calibrated to the Greek economy, all of the budget measures produce sizable declines in output in both the short- and long-run, and even if delayed, it will merely cause greater economic hardship in the long-run.