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

Milan Deskar-Škrbić; Darjan Milutinović

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

Authors

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

Keywords:

fiscal consolidation, fiscal multipliers, Croatia, economic modelling

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.

Additional Files

Published

2021-03-10

Issue

Vol. 45 No. 1 (2021)

Section

Articles

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How to Cite

Design of fiscal consolidation packages and model-based fiscal multipliers in Croatia. (2021). Public Sector Economics - Submission Site, 45(1), 1-61. https://ojs.srce.hr/index.php/pse/article/view/15501