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A Fiscal-Monetary Policy Scheme Against Greek Indebtedness and Impoverishment

Soldatos, Gerasimos T. (2014): A Fiscal-Monetary Policy Scheme Against Greek Indebtedness and Impoverishment. Forthcoming in: Economia Internazionale/International Economics


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Troika economics has brought Greece to a serious depression at a zero lower bound, with near unlimited supply of labor and near unlimited demand for money. In this paper, it is argued that these circumstances dictate to Greece the implementation individually of a long-term self-financing deficit-spending plan as a means of putting money into circulation in the country. Such a seigniorage-based self-financing deficit-spending, will boost demand and in response, output, tax base and tax revenue given the tax rate, with the increase in revenue being more than enough to be covering the deficit, and the excess revenue being channeled to paying out the accumulated debt. A k-percent monetary growth rule and constant inflation rate should be put forward, domestic credit expansion should be kept below OECD average, and potential output and tax Laffer curve assessments should be keeping track of the changing hysteresis effect. In view of the political instability plaguing modern Greece, the k-percent, balanced-budget, and no-open-market operations (unless under acts of God) rules should be constitutionalised (along with the tax system).

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