Thursday, January 29, 2015

How Greek Citizens Saw Their Government Services Curtailed

by Paolo Mauro and Jan Zilinsky

Peterson Institute for International Economics

January 29, 2015

It is generally understood that Greece has undertaken a major fiscal adjustment since the beginning of the crisis that engulfed it. But the scale and speed of the decline in government expenditures do not seem to be fully recognized, despite the close attention devoted to Greece by the press in recent years.

In part, this stems from an excessive focus on measures of the deficit expressed as shares of GDP. Indeed, analysts interested in debt sustainability often focus on technical measures such as the cyclically adjusted primary fiscal surplus as a share of GDP. But changes in these measures are difficult to interpret against the background of a staggering contraction of output, and in any case seem inadequate to capture citizens’ well-being.

What is the scale of Greece’s fiscal adjustment from the perspective of its citizens? And how does it compare to other countries?

An internationally available proxy for the real flow of goods and services that a citizen receives from the government is real per capita general government primary expenditure. It is obtained by dividing nominal general government expenditure (excluding interest payments) by the GDP deflator and further dividing by population. For each advanced country, the level of real per capita general government primary expenditure is set to 100 in the year 2005.


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