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Anastasios V. Katos and Eleni F. Katsouli
''The five little PIIGS and the big bad Troika''
( 2012, Vol. 32 No.1 )
The purpose of this paper is to investigate whether efforts to eliminate the budget deficits in Portugal, Ireland, Italy, Greece and Spain, as it has been suggested by Troika (European Commission, International Monetary Fund, and European Central Bank), will delay the economic growth of these countries than enhance it. For this purpose a state-space equation for each country is estimated using maximum likelihood and Kalman filter. The results indicated that policies aiming at increasing labor productivity positively influence economic growth in all countries, whilst policies aiming at reducing public deficits positively influence economic growth in Portugal and Ireland, and negatively influence economic growth in Italy, Greece and Spain.
Keywords: Economic growth, Labor productivity, Budget deficit, Troika, Kalman filter, Eurozone
JEL: E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
H6 - National Budget, Deficit, and Debt: General
Manuscript Received : Nov 01 2011 Manuscript Accepted : Mar 27 2012

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