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Title: Market and political power interactions in Greece: An empirical investigation Authors:  Vanghelis Vassilatos - Research Centre of the Athens University of Economics and Business (RC/AUEB) (Greece) [presenting]
Tryphon Kollintzas - Athens University of Economics and Business and CEPR (Greece)
Dimitris Papageorgiou - Bank of Greece (Greece)
Mike Tsionas - Lancaster University (United Kingdom)
Abstract: Using a dynamic panel of 21 OECD countries, we find that, unlike the other OECD countries in the sample, wage setting institutions, competition conditions, public finances and external imbalances can account for the behavior of the public sector wage premium (WPR) and the self employed taxation gap (TSL) in Greece, and to a lesser extent in Spain and Portugal, in a manner that is consistent with an insiders-outsiders society. That is, a politicoeconomic system characterized by groups of selfish elites that enjoy market power, but at the same time cooperate in influencing government in protecting and promoting their collective self interests. Then, we find that for Greece as well as Spain and Portugal, WPR and TSL have an adverse effect on both TFP and output growth. Finally, the effect of WPR and TSL on the business cycle (shock propagation mechanism) is investigated via a panel VAR analysis. Again, impulse response function analysis suggests that the shock propagation mechanism of WPR and TSL for Greece and to a lesser extent for Spain and Portugal, are quite different from the rest of the OECD countries. These results are important in order to understand the Greek crisis.