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Effects of Fiscal Policy in a Small Open Economy: Evidence of Croatia

Milan Deskar-Škrbić orcid.org/0000-0002-7611-2071 ; Arhivanalitika Ltd.
Hrvoje Šimović orcid.org/0000-0002-4040-0899 ; Faculty of Economics and Business, University of Zagreb
Tomislav Ćorić ; Faculty of Economics and Business, University of Zagreb

Abstract

In this paper we use structural VAR model to analyze dynamic effects of fiscal shocks on economic activity in Croatia from 2000Q1-2012Q2. Due to the fact that Croatia is a small open economy we assume that shocks of foreign origination can have notable effects on its performance. Therefore, original Blanchard-Perotti (2002) model is extended by introducing variables that represent external (foreign) demand shocks. The results show that the government spending has a positive and statistically significant effect on private aggregate demand and private consumption, and net (indirect) taxes have a negative and statistically significant effect on private consumption and private AD. It should also be noted that this paper represents first attempt of estimating size of fiscal multipliers in Croatia in open economy model.

Keywords

fiscal policy; small open economy; Croatia; SVAR

Hrčak ID:

136785

URI

https://hrcak.srce.hr/136785

Publication date:

7.10.2013.

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