Greece Needs Growth Policies Alongside Cuts, Nobel Winner Pissarides Says
Greece’s budget cuts must be accompanied by policies to help the economy emerge from the current crisis, Nobel Prize winner Christopher Pissarides wrote in an article published by Kathimerini newspaper.
Pissarides, who shares the 2010 Nobel Prize in Economic Sciencies with Dale Mortensen and Peter Diamond, said the country should cut corporate taxes and reduce the number of state workers to revive the economy. An annual growth rate of 4 percent would enable the country to meet its borrowing obligations and improve productivity, he said.
“The austerity measures and economic reform” should be accompanied “by a very strong program of development policies in order to remove the country from the vicious circle of rising unemployment and bankruptcies,” Pissardes wrote in the Athens- based newspaper today. The article was co-written with Costas Azariadis, a professor at Washington University, and Yannis Ioannides, a professor at Tufts University.
Greece’s government has raised taxes and cut pensions and wages to reduce the European Union’s second-largest budget deficit. The draft budget forecasts an increase in unemployment to 14.5 percent in 2011, the highest in more than a decade, from 9.5 percent last year, as the economy continues to contract.
The authors said taxes on companies should be cut to 10 percent to help boost foreign direct investment, while the introduction of Individual Retirement Accounts could attract savings equivalent to 5 percent of gross domestic product within a decade, according to the article.
Public payrolls should be cut to 700,000 by 2015 from 1.1 million through the sale of state companies, which would reduce the wage bill by 8.6 billion euros (11.9 billion), according to the article. Giving companies the right to build and maintain infrastructure such as roads and airports tax free for 30 years would lift productivity by as much as 40 percent, it said.
Without radical measures, the income of Greeks will fall to about 72 percent of the EU average from 95 percent, Pissarides and his co-authors said. Their 14 measures would help increase labor productivity to 120 percent of the EU average by 2020 from 80 percent and create 1.2 million new private jobs, they said.
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