Original scientific paper

https://doi.org/10.3326/pse.45.1.1

Design of fiscal consolidation packages and model-based fiscal multipliers in Croatia

Milan Deskar-Škrbić orcid.org/0000-0002-7611-2071 ; Croatian National Bank, Modelling Department, Zagreb, Croatia
Darjan Milutinović orcid.org/0000-0001-5010-7437 ; Croatian National Bank, Economic Analysis Department, Zagreb, Croatia

Abstract

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. To avoid this undesirable scenario, fiscal policy makers should rely on growth-friendly consolidation packages. We have built semi-structural macro-fiscal model of the Croatian economy 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.

Keywords

fiscal consolidation; fiscal multipliers; Croatia; economic modelling

Hrčak ID:

253401

URI

https://hrcak.srce.hr/253401

Publication date:

9.3.2021.

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