This paper uses a microsimulation approach to analyse the phenomenon of “fiscal drag” in Greece, i.e. the increase in tax revenues that arises when nominal tax bases grow, while the parameters of the personal income tax (PIT) system remain unchanged in nominal terms. First, we estimate the phenomenon in terms of the tax-to-base elasticity, which captures the responsiveness of PIT revenue to changes in the tax base under an unchanged legislation. The results suggest an elasticity of almost 1.8 in 2019, implying a built-in progressivity in the PIT system and, therefore, potential for fiscal drag. We further decompose this elasticity to identify its main drivers across income sources (labour, capital, self-employment, pensions and benefits) and tax parameters (tax brackets, tax deductions/credits) as well as across the income distribution. Second, we assess fiscal drag in practice between 2019 and 2023 by comparing actual PIT revenues (incorporating observed income growth and legislative changes) against counterfactual 2023 scenarios simulating alternative indexation practices. We quantify the actual impact of fiscal drag, defined as a share of GDP, and the extent to which government policies have managed to offset it. The findings indicate that, although Greece has no formal indexation of tax parameters, the tax policy reforms implemented between 2019 and 2023 more than offset the potential effects of fiscal drag, keeping PIT revenues broadly stable as a share of GDP, while slightly reducing the average effective tax rate. Overall, the results highlight that, during a period of rapid nominal income growth, Greece’s PIT reforms improved both the progressivity and the redistributive capacity of the tax system, while safeguarding PIT revenue. These insights are relevant for the design of future tax policy interventions.
This paper investigates the role of travel-related services – specifically package holidays, restaurants and hotels, and passenger transport by air – in the evolution of the Harmonised Index of Consumer Prices (HICP) in Greece. With tourism representing a substantial sector of the Greek economy, understanding how the prices of these services interact with broader inflationary dynamics is of increasing importance, particularly in the context of the euro area’s harmonised statistical framework. The study begins with an overview of the HICP and the national Consumer Price Index (CPI), highlighting methodological differences and similarities in how travel-related services are treated within each. It then examines the individual components of travel-related services to assess their contribution to the overall HICP, using official monthly data and decomposition techniques. Subsequently, the paper tracks the historical evolution of these services prices, exploring seasonal patterns, structural shifts and the impact of major economic events, such as the COVID-19 pandemic and the subsequent recovery. To place the Greek experience in a broader context, the analysis incorporates a cross-country comparison, examining how travel-related services inflation has varied across euro area countries and identifying potential sources of heterogeneity. The findings aim to inform both statistical and policy discussions, shedding light on the weight and behaviour of a vital sector within inflation measurement and offering insight into price dynamics that are often volatile yet economically significant. The paper concludes by summarising key findings and proposing ideas for future research.
This paper investigates the potential macroeconomic effects of a tax on banks’ profits for the Greek economy. To this end, a Dynamic Stochastic General Equilibrium (DSGE) model is employed, which allows the identification of the main transmission channels through which a tax on bank profits may affect the real economy and the financial sector. We find that such a tax affects the economy primarily via the banking capital channel and the bank funding channel, constraining the supply of credit, reducing the value of banking collateral and potentially leading to a contraction in economic activity. Overall, the findings highlight that a tax on bank profits may generate adverse effects on both the financial sector and the real economy, underscoring the need for careful policy design and evaluation of such a policy measure.
Rationale This article describes the behaviour of Spain’s foreign direct investment (FDI) flows and stocks in recent years, against a backdrop in which firms and governments increasingly take into account geostrategic considerations in their decisions on such transactions. Takeaways •Over the past decade, inward FDI flows have performed better in Spain than at global level and in the main euro area economies. •The geographical composition of Spain’s stock of inward FDI suggests a relatively low exposure to geopolitical risk, with other European Union countries being the ultimate counterpart for nearly 50% of the country’s total FDI stock in 2023. The second most important source of Spain’s FDI is the United States, which accounts for 14%. •However, in the current complex setting, extraordinary uncertainty surrounds the stability and strength of some traditional geopolitical alignments.
Rationale This article analyses how the share of non-marketable assets (basically bank loans) pledged as collateral in the Eurosystem’s monetary policy credit operations has changed over the last 12 months, homing in on the actual and potential contribution of the Banco de España’s in-house credit assessment system (ICAS BE). Takeaways •In the last 12 months the share of non-marketable assets in the collateral pledged by Spanish counterparties in Eurosystem financing operations has held steady, after growing for several years in the wake of the COVID-19 crisis. The proportion of non-marketable assets accounted for by loans to firms assessed using the ICAS BE has continued to grow for the third consecutive year, albeit more moderately. •Counterparties continue to have ample scope to increase the volume of ICAS BE-rated loans pledged, especially in the case of loans to small and medium-sized enterprises (SMEs). •Credit ratings assigned by the ICAS BE to Spanish firms have remained largely unchanged from last year, as higher financing costs have been offset by a slight improvement in the other areas assessed, particularly liquidity.
