Bitros, G., C., "Democracy, redistribution, and economic growth: Some evidence from post-1974 Greece"

Title: "Democracy, redistribution, and economic growth: Some evidence from post-1974 Greece"

Speaker: Professor Emeritus George C. Bitros, Department of Economics, Athens University of Economics and Business

Host:  Assistant Professor Efthymios Athanasiou, Department of Economics, Athens University of Economics and Business

Room:  76, Patission Str., Antoniadou Wing, 3rd floor, Room A36

Abstract: In the post-war period, Greece experienced two distinct phases of economic growth. From 1954 to 1974, the average annual growth rate was close to 7%. However, from 1975 to 2023, this rate plummeted to less than 1%. This paper aims to explore the reasons behind this stark asymmetry. By utilizing annual data from reputable international databases that span from 1995 to 2023, the estimated dynamic ARDL model reveals that the decline in economic growth after 1974 can largely be attributed to a range of redistribution policies implemented under the guise of promoting “social rights”. These policies were expected to discourage saving, diminish investment, suppress risk-taking and entrepreneurship, and incentivize businesses and professionals to relocate abroad. Unfortunately, this is precisely what transpired. While the rationale of fostering “social rights” was used to garner public support and maintain political stability, the primary objective of the political order established under the 1975 Constitution was the expansion of the state. This expansion is reflected in the rise of general government expenditure from 24.1% of GDP in 1974 to 52.3% in 2023.To achieve large-scale redistribution, governments consistently hindered economic growth by increasing taxes on income and wealth, imposing heavy value-added taxes, and expanding employment in the public sector, ostensibly to prevent a dramatic rise in unemployment. To restore economic growth while also strengthening democracy, I recommend reverting to the provisions and institutional arrangements of the 1952 Constitution. Alternatively, the adoption of the new constitution recently proposed by six eminent Greek citizens may prove even more beneficial.

Attachments:  PDF of Relevant Paper