Investment Persistence and Payroll Financing during Fiscal Consolidation: Evidence from Greece

This paper analyzes the persistence of foreign direct investment (FDI) and household consumption in Greece during the austerity period using a stochastic Keynesian model with FIGARCH-based volatility. By linking consumption, payroll financing, and investment flows, the model shows how reductions in household demand propagate through investment expectations and affect labor market stability. Calibrated on monthly data, the framework replicates observed FDI dynamics, confirming that investment responded endogenously to consumption patterns. Results highlight the critical role of coordinated fiscal support and national savings in restoring investment equilibrium and mitigating the contractionary effects of austerity. JEL Classification. E62, H63, H68, C58, G32