Design of fiscal consolidation packages and model-based fiscal multipliers in Croatia
The widening fiscal deficits and the increase of public debt triggered by the COVID-19 crisis suggest that fiscal policy makers will have to engage in substantial fiscal consolidation in order to stabilize public finances in the mid run. However, the implementation of a fiscal consolidation package,...
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| Format: | Article |
| Language: | English |
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Institute of Public Finance
2021-03-01
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| Series: | Public Sector Economics |
| Subjects: | |
| Online Access: |
http://www.pse-journal.hr/upload/files/pse/2021/1/1.pdf
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| _version_ | 1818950075094663168 |
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| author | Milan Deskar-Skrbic Darjan Milutinovic |
| author_facet | Milan Deskar-Skrbic Darjan Milutinovic |
| author_sort | Milan Deskar-Skrbic |
| collection | DOAJ |
| description | The widening fiscal deficits and the increase of public debt triggered by the COVID-19 crisis suggest that fiscal policy makers will have to engage in substantial fiscal consolidation in order to stabilize public finances in the mid run. However, the implementation of a fiscal consolidation package, if it is not properly designed, can be detrimental for growth and even lead to a self-defeating outcome. In order to avoid this undesirable scenario, fiscal policy makers should rely on growth-friendly consolidation packages. The design of growth-friendly fiscal consolidation packages requires an understanding of the size of multipliers of different fiscal instruments. Thus, in this paper we provide the first deeper insights into the size of model-based disaggregated fiscal multipliers in Croatia. For this purpose, we have built a semi-structural macro-fiscal model of the Croatian economy and used Croatia’s experience during the fiscal consolidation episode under the excessive deficit procedure (EDP) to retrieve fiscal multipliers, analyse the design of the policy package and provide model-based evaluation of the macroeconomic effects of this consolidation episode. Our results indicate that the fiscal consolidation implemented during the EDP was not growth-friendly and that it was partially self-defeating. We hope that our results can help fiscal policy makers to avoid similar policy mistakes in future fiscal consolidations. |
| first_indexed | 2024-12-20T09:12:49Z |
| format | Article |
| id | doaj.art-ab2b90dddee14e35bcec4010460ad10e |
| institution | Directory Open Access Journal |
| issn | 2459-8860 |
| language | English |
| last_indexed | 2024-12-20T09:12:49Z |
| publishDate | 2021-03-01 |
| publisher | Institute of Public Finance |
| record_format | Article |
| series | Public Sector Economics |
| spelling | doaj.art-ab2b90dddee14e35bcec4010460ad10e2022-12-21T19:45:30ZengInstitute of Public FinancePublic Sector Economics2459-88602021-03-0145116110.3326/pse.45.1.16748Design of fiscal consolidation packages and model-based fiscal multipliers in CroatiaMilan Deskar-Skrbic0Darjan Milutinovic1 Croatian National Bank, Modelling Department, Zagreb, Croatia Croatian National Bank, Economic Analysis Department, Zagreb, Croatia The widening fiscal deficits and the increase of public debt triggered by the COVID-19 crisis suggest that fiscal policy makers will have to engage in substantial fiscal consolidation in order to stabilize public finances in the mid run. However, the implementation of a fiscal consolidation package, if it is not properly designed, can be detrimental for growth and even lead to a self-defeating outcome. In order to avoid this undesirable scenario, fiscal policy makers should rely on growth-friendly consolidation packages. The design of growth-friendly fiscal consolidation packages requires an understanding of the size of multipliers of different fiscal instruments. Thus, in this paper we provide the first deeper insights into the size of model-based disaggregated fiscal multipliers in Croatia. For this purpose, we have built a semi-structural macro-fiscal model of the Croatian economy and used Croatia’s experience during the fiscal consolidation episode under the excessive deficit procedure (EDP) to retrieve fiscal multipliers, analyse the design of the policy package and provide model-based evaluation of the macroeconomic effects of this consolidation episode. Our results indicate that the fiscal consolidation implemented during the EDP was not growth-friendly and that it was partially self-defeating. We hope that our results can help fiscal policy makers to avoid similar policy mistakes in future fiscal consolidations. http://www.pse-journal.hr/upload/files/pse/2021/1/1.pdf fiscal consolidation; fiscal multipliers; croatia; economic modelling |
| spellingShingle | Milan Deskar-Skrbic Darjan Milutinovic Design of fiscal consolidation packages and model-based fiscal multipliers in Croatia Public Sector Economics fiscal consolidation; fiscal multipliers; croatia; economic modelling |
| title | Design of fiscal consolidation packages and model-based fiscal multipliers in Croatia |
| title_full | Design of fiscal consolidation packages and model-based fiscal multipliers in Croatia |
| title_fullStr | Design of fiscal consolidation packages and model-based fiscal multipliers in Croatia |
| title_full_unstemmed | Design of fiscal consolidation packages and model-based fiscal multipliers in Croatia |
| title_short | Design of fiscal consolidation packages and model-based fiscal multipliers in Croatia |
| title_sort | design of fiscal consolidation packages and model based fiscal multipliers in croatia |
| topic | fiscal consolidation; fiscal multipliers; croatia; economic modelling |
| url |
http://www.pse-journal.hr/upload/files/pse/2021/1/1.pdf
|
| work_keys_str_mv | AT milandeskarskrbic designoffiscalconsolidationpackagesandmodelbasedfiscalmultipliersincroatia AT darjanmilutinovic designoffiscalconsolidationpackagesandmodelbasedfiscalmultipliersincroatia |