Greece experienced a boom until 2007, followed by a collapse of unprecedented magnitude and persistence. We assess the sources of the boom and the bust, using a rich estimated dynamic general equilibrium model. External demand and government consumption fueled the boom in production, whereas transfers fueled the boom in consumption. Different from the standard narrative, wages and prices declined substantially during the bust. Tax policy accounts for the largest fraction of the bust in production, whereas uninsurable risk accounts for the bust in consumption and wages. We assess how the composition of fiscal adjustment and bailouts affected the crisis.

More on this topic

BFI Working Paper·May 13, 2025

Saved by Medicaid: New Evidence on Health Insurance and Mortality from the Universe of Low-Income Adults

Angela Wyse and Bruce Meyer
Topics: Health care, Tax & Budget
BFI Working Paper·Jan 6, 2025

The Claiming of Children on U.S. Tax Returns

Geoffrey Gee, Jacob Goldin, Joseph Gray-Hancuch, Ithai Z. Lurie, and Vedant Vohra
Topics: Tax & Budget
BFI Working Paper·Dec 10, 2024

Optimal Income Tax Deductions for Mixed Business and Personal Expenditures

Jacob Goldin, Sebastian Koehne, and Nicholas Lawson
Topics: Tax & Budget