Public Sector Economics - submission site
Public Sector Economics is a scientific journal published by the Institute of Public Finance in Zagreb, Croatia. The journal seeks submissions of original theoretical, empirical and policy-oriented papers analysing the role and functioning of the public sector at macroeconomic, sectoral and microeconomic levels, in both advanced and emerging market economies. According to SJR – Scimago Journal & Country Rank indicators for 2021, Public Sector Economics is the top economics and econometrics journal in Croatia. Looking forward to many more excellent new issues, your Public Sector Economics team. For the publisher Vjekoslav Bratić
If accepted for publication, the authors will be asked to sign a Licence to Publish. Authors retain the copyright on the papers published in PSE but grant the right of publication to the journal. Authors must obtain the right to use copyright material (e.g. maps, drawings, literary quotes, lyrics) from its owner before publishing the paper in PSE. PSE is an Open Access Journal licensed under the Creative Commons Attribution-Non/Commercial 4.0 International License, which permits non-commercial use and redistribution, as long as the licensed work is passed along unchanged and in whole, with credit to PSE as its original publisher. The authors can make the results of their accepted papers available before they are published in PSE on preprint platforms, blogs, and other informal communication channels by providing a link to the PSE website and noting that the manuscript will be published in PSE. For complete information on copyright, please see Ethical guidelines for publication in PSE
The influence of education on social mobility in Croatia and Greece: a comparative analysis
This paper explores social mobility in Greece and Croatia among individuals born between 1950-2000, focusing on the role of education in occupational and educational mobility. We draw information on both dimensions from the European Union Statistics on Income and Living Conditions (EU-SILC) survey. When intergenerational educational mobility is examined our findings show a downward trend of upward mobility with the outcomes being better for women in both countries. They also suggest that individuals whose parents have a low level of education are significantly less likely to complete tertiary education than those whose parents have higher levels of education. Exploring intergenerational occupational mobility as an indicator of relative mobility reveals a growing persistence of the influence of parental occupational status on children’s outcomes. Although the influence of education is slightly stronger in Greece, higher educational levels increase the probability of upward occupational mobility in both countries.
Copyright (c) 2025 Georgios Kitsoleris, Sara Čulo (Author) https://creativecommons.org/licenses/by-nc/4.0
Optimal fiscal policies in booms and recessions: a case study for Slovenia
Optimal fiscal policies are determined for Slovenia for the next few years under alternative assumptions about global developments. We construct a baseline scenario, two scenarios with a recession and two with a boom, each with a demand side and a supply side shock. We use the macroeconometric model SLOPOL12 and assume an intertemporal objective function for Slovenian policy makers containing the main targets derived from a survey among policy makers as arguments. Approximately optimal policies are calculated for all scenarios. Fiscal policies are characterized by an unequal design for dealing with the trade-off between output stabilization and budgetary sustainability: instruments with demand side and supply side effects (direct taxes and public investment) are used for output and employment stabilization, while government consumption and other instruments with only demand side effects are assigned to budget consolidation. The results are rather similar in the different scenarios and only mildly counter-cyclical.
Copyright (c) 2025 Dmitri Blueschke, Klaus Weyerstrass, Reinhard Neck, Miroslav Verbič (Author) https://creativecommons.org/licenses/by-nc/4.0
35 Years of Public Sector Reform in Central Europe
Copyright (c) 2025 Hrvoje Hrnkaš (Author) https://creativecommons.org/licenses/by-nc/4.0
Assessing the impact of labour market spendings on unemployment dynamics across demographics in OECD countries
This study investigates the long-run effects of labour market policies on unemployment dynamics in 36 OECD countries from 2004 to 2022. Derived from second-generation panel methods that address cross-sectional dependence and heterogeneity, the results indicate that activation policies without providing employment maintenance incentives are associated with higher unemployment. Institutional and public training expenditures mainly reduce youth unemployment, while minimum income benefits and wages contribute to higher adult and total unemployment, reflecting disincentivising effects and wage rigidities. Rising labour force participation increases measured unemployment by re-engaging marginally attached workers. Robustness checks across sub-periods and welfare-regime clusters reveal heterogeneity, showing that policy effects are context-dependent and time-sensitive rather than uniformly stable. Causality tests confirm two-way interactions between unemployment and labour market policies. These findings underscore the need for nuanced, age-specific strategies that integrate activation measures, targeted training, and carefully calibrated income support to promote inclusive and effective labour markets in advanced economies.
Copyright (c) 2025 Osama Shaikh, Selcen Ozturk (Author) https://creativecommons.org/licenses/by-nc/4.0
The role of pay-for-performance in promoting integrated care
This work discusses the role pay-for-performance schemes (P4Ps) have in mitigating coordination problems between two sequentially organized providers (first and second). We analyse global budgets as well as three P4Ps that differ with respect to the targeted provider (the first, the second or both). It follows that global budgets introduce coordination problems being reduced when P4Ps are brought in. With respect to coordination, P4Ps that target the first provider do better than P4Ps that target the second provider due to the first provider having sole responsibility for some coordination problems. Furthermore, the optimal P4Ps are found, not only to define optimal quality levels, but also to depend on the providers’ altruism, the providers’ productivity, their position in the production chain and spill-over effects. The collection of relevant information will thus be costly for P4Ps, and it cannot be ruled out that global budgets do better than the optimal P4Ps.
Copyright (c) 2025 Sverre Grepperud, Pål Andreas Pedersen (Author) https://creativecommons.org/licenses/by-nc/4.0
Determinants of tax morale among university students in Croatia
This study aims to identify the main determinants of tax morale among university students in Croatia. The partial least squares structural equation modelling (PLSSEM) approach has been used, and the results show that trust in institutions, religious principles and tax knowledge positively influence the tax morale of university students. Contrary, politics, social norms, and financial knowledge negatively influence tax morale. Higher financial knowledge lowers tax morale, while students who believe that the state should have a greater influence on the economy have higher tax morale. Moreover, there are some differences in attitudes towards tax morale according to gender, age and place of birth. The research shows a general lack of tax knowledge among students, indicating a need for improved tax education initiatives. By incorporating these findings into policy and curriculum design, governments can cultivate a culture of compliance among future taxpayers, ultimately contributing to more effective and equitable tax systems.
Copyright (c) 2025 Josip Visković, Tea Šestanović, Paško Burnać (Author) https://creativecommons.org/licenses/by-nc/4.0
Explaining wage developments in Croatia: the role of the firm composition effect
While wage developments are primarily driven by changes in real economic activity, the role of labour force allocation is often overlooked. Using Croatian establishment-level data (2002-2023), we apply static and dynamic Olley-Pakes decompositions to assess how labour reallocation impacts wages and productivity. The wage allocation premium, defined as the ratio between actual aggregate wage and wage under random worker distribution, reveals a countercyclical impact until 2021, turning procyclical after the pandemic. Dynamic decomposition supports these findings and demonstrates that entering firms depress average wages, while exiting firms raise them slightly. Applying the same approach to productivity, we find that labour reallocation mitigated productivity losses during the recession and moderated growth during the recovery. Unlike wage patterns, this countercyclical effect on productivity persisted post-pandemic. Since 2020, wage allocation premium growth has outpaced the gross value added (GVA) allocation premium, which may have pressured firms to raise prices, potentially contributing to inflation.
Copyright (c) 2025 Josip Raos, Ivana Čičak (Author) https://creativecommons.org/licenses/by-nc/4.0
Overeducated yet underskilled: graduate labour market mismatch in Morocco and Serbia
This paper analyses the phenomenon of qualification and skill mismatch among university graduates in two countries in Morocco and Serbia. These countries are located within the super-periphery of the EU and face similar challenges in fostering competitive economies capable of trading with and receiving investment from their northern neighbours. Effective skill development and successful labour market matching of university graduates are crucial instruments to meet these challenges. We explore the different dimensions of this requirement based on an analysis of qualification and skill mismatch on the graduate labour market. Our survey reveals simultaneous overqualification and underskilling of university graduates, a high incidence of graduate mismatch combined with low-wage penalties in the public sector, high levels of mismatch and associated relatively high-wage penalties among women graduates, and an amelioration of skill mismatch over time due to on-the-job learning and job switching.
Copyright (c) 2025 Ivana Prica, Imane El Ouizgani, Will Bartlett (Author) https://creativecommons.org/licenses/by-nc/4.0
Time gap between termination of paid parental leave and eligibility for early childhood education and care services in Croatia
Parental leave is essential for supporting women’s participation in the labour market, while accessible and affordable childcare is equally important for their return to work. This study examines the care gap in Croatia, defined as the period between the end of paid parental leave and the start of early childhood education and care (ECEC). Data from an anonymous online survey were analysed using logistic regression to identify predictors of this gap. The results confirm its presence and show that it affects mothers disproportionately, as many adjust their employment during this period. The probability of a care gap is lower in larger local government units (LGUs) and for children born later in the year. These findings highlight the importance of aligning parental leave and ECEC enrolment policies to promote gender equality and support a better work-life balance for families.
Copyright (c) 2025 Ana Marija Sikirić Simčić (Author) https://creativecommons.org/licenses/by-nc/4.0
Public debt and GDP growth in BRICS: unravelling time-scale complexities through wavelet analysis
This study examines the impact of public debt on economic growth in BRIC nations – Brazil, Russia, India, and China – over 1996-2022 using wavelet coherence and cross-wavelet analysis to capture both short-term dynamics and longterm trends. The findings reveal a positive but heterogeneous co-movement between public debt and GDP, intensifying during COVID-19. Russia exhibits short-to-medium-term co-movement, while Brazil, India, and China show mediumto-long-term patterns. In Brazil and Russia, public debt drives growth during economic distress, whereas in India and China, growth leads to debt accumulation. Granger causality tests confirm the directionality of these relationships, supporting the robustness of the wavelet-based results. The study highlights the need for tailored debt management strategies aligned with country-specific economic conditions to support sustained and inclusive growth.
Copyright (c) 2025 Ajaz Ayoub, Tahir A Wani, Abid Sultan (Author) https://creativecommons.org/licenses/by-nc/4.0
WISEs and their potential to transform the Croatian skill-formation regime
Work Integration Social Enterprises (WISEs) combine social and economic goals and support vulnerable groups by offering employment and skill development opportunities. This paper explores their potential to transform Croatia’s skill-formation regime. By analysing data from 13 European countries, we examine the current state of WISEs in Croatia, assess their capacity to influence skill development practices and position them in a broader post-socialist context. The findings suggest that while Croatian WISEs are limited by the small size of the sector, the absence of systematic support and comparative underinvestment in staff, they still hold the potential to transform the Croatian skill formation regime in the direction a more coordinated/collectivized approach. Authors recommend introducing a clearer distinction between WISEs primary orientated towards permanent or transitional labour market integration; and incentivizing WISEs oriented towards transitional integration to engage with the provision of vocational education and training, adult education and active labour market policy.
Copyright (c) 2025 Nikola Buković (Author) https://creativecommons.org/licenses/by-nc/4.0
An economic analysis of leisure-proportional benefits in a small open economy
This paper analyses the impact of public pensions on resource allocation in a small open economy. In particular, we focus on the economic implications of leisure-proportional benefits. It is well known that a pay-as-you-go scheme can improve social welfare when the population growth rate exceeds the interest rate, which we call the “Aaron effect”. We analyse the changes in labour supply, savings, and social welfare from an increase in the public pension taking into account the Aaron effect. We obtain the following results. First, we show that the effect of public pensions on labour supply includes the Aaron effect, but regardless of its sign, labour supply decreases as public pensions increase. Second, the effect of public pensions on savings does not include the Aaron effect, and savings decrease as public pensions increase. Third, the effect of the introduction of public pensions on social welfare consists only of the Aaron effect.
Copyright (c) 2025 Wataru Kobayashi, Junichiro Takahata https://creativecommons.org/licenses/by-nc/4.0
Governance quality vs. stimulus size: fiscal policy effectiveness during the COVID-19 pandemic
Given the importance of good governance for the efficiency of government spending, this study reveals the role of governance quality in fiscal policy effectiveness during the COVID-19 outbreak. Using cross-country threshold regressions for 144 countries, we find that a stringent lockdown policy (i) does not lead to economic downturn in countries with larger fiscal stimulus, (ii) leads countries with poor governance quality to head toward economic slowdown even with higher stimulus packages, (iii) does contribute to economic recovery even in countries with smaller fiscal packages if accompanied by higher governance quality. Overall, the results suggest that good governance helps achieve economic recovery, whereas an increase in the size of the fiscal stimulus can, at best, help protect against economic slowdown. The empirical findings have several implications for policymakers in countries where the blow hits the hardest, as well as for fiscal governance framework.
Copyright (c) 2025 Mert Topcu, Mustafa Alpin Gulsen https://creativecommons.org/licenses/by-nc/4.0
Excellence comes from distance: the case of a Croatian higher education institution
In this paper, we empirically test the impact of motivation on educational outcomes by using distance to home region as a proxy variable. The data come from the Faculty of Economics and Business, University of Rijeka. We develop two econometric models with GPA and number of courses passed as dependent variables, while controlling for physical distance from the home region to Rijeka and students’ educational abilities. Our results show that distance negatively affects the number of courses passed, but has no effect on GPA. We argue that these results show that distance from the home region is a strong motivating factor for earlier rather than later graduation and that educational policies at the faculty level are needed to increase the motivation of local students to stay level with their “foreign” peers. This would help to minimize opportunity costs for local students and lower the student to academic staff ratio.
Copyright (c) 2025 Vinko Zaninović, Zoran Ježić, Alen Host (Author) https://creativecommons.org/licenses/by-nc/4.0
Is it worth raising the normal retirement age? A new model to estimate the employment effects
Pension reforms, that raise the normal retirement ages, are crucial yet controversial in ageing developed countries. While cross-country studies confirm positive significant effects, their estimated effects are modest compared to those from country-specific studies using micro data. This study attempts to reconcile these differences by introducing greater heterogeneity into the cross-country approach. Starting from a standard cross-country panel error correction model, several empirical innovations are introduced to better capture the influence of the demographic composition of countries, the possibility of retiring at an earlier age, and the importance of private pension funds and early exit pathways. These changes result in larger and more heterogeneous predicted effects of changes in the normal retirement ages on the older-age employment rate and average age of labour market exit across countries. The proposed model, allows for simulations on the effects of pension policy reforms.
Copyright (c) 2025 Hermes Morgavi (Author) https://creativecommons.org/licenses/by-nc/4.0
Climate finance, institutions and innovation systems in Sub-Saharan Africa
To enhance climate finance’s effectiveness in Sub-Saharan Africa (SSA) and explore how it can be deployed to boost innovation, this study has explored the effect of climate finance combined with institutional quality on innovation while emphasizing the multidimensional measurement approach to innovation. Using data from twenty-three (23) countries in SSA spanning the period 2011 to 2022 and the system Generalized Method of Moment (GMM) estimator, the results from the study show a negative and significant effect of climate finance on innovation in SSA. Also, we found that institutional quality has a positive and significant effect on innovation. Further, we realized from the conditional effect results that when the level of institutions in SSA is highly effective, the positive effect of climate finance on innovation is magnified. Given these findings, this study recommends that policies to improve climate finance in SSA should be pursued simultaneously with policies promoting strong institutions.
Copyright (c) 2025 Frank Adu, Professor https://creativecommons.org/licenses/by-nc/4.0
Do increases in public sector wages affect inflation?
After the pressures from rising energy and food prices subsided, wage increases became the primary risk to inflation. Given concerns that substantial wage growth in the public sector during Croatia’s 2024 election year could create additional inflationary pressures, this paper estimates the potential impact of public sector wage growth on overall inflation using BVAR models. The analysis finds that while the direct impact of 0.15 pp is negligible, there may be a stronger indirect effect. Depending on the assumed (side) effects of public sector wage growth on aggregate demand and the extent of wage spillover to the private sector, the indirect effect of public sector wage growth on inflation could range from 0.34 to 0.88 percentage points. However, considering the double-digit wage growth, it can be concluded that the estimated total contribution of 0.5 to 1 basis points from public sector wage growth is relatively modest.
Copyright (c) 2025 Ozana Nadoveza https://creativecommons.org/licenses/by-nc/4.0
Assessing uncertainty and its effects on the public sector: Editors’ introduction to the thematic issue of Public Sector Economics
Copyright (c) 2024 Petar Sorić, Mirjana Čižmešija https://creativecommons.org/licenses/by-nc/4.0
A Taxing Journey – How Civic Actors Influence Tax Policy
Copyright (c) 2025 Filip Badovinac https://creativecommons.org/licenses/by-nc/4.0
Pressure on interest rates on deposits in Croatia: government bonds or European Central Bank?
The paper analyses the importance of government bonds as the key instrument on the capital market and their effect on interest rates on deposits in Croatia. February 2023 saw the first government bonds issued in Croatia, which provided citizens with safe investment opportunities, especially following low interest rates periods across Europe that continued several months into Croatia’s accession to the euro area. The authors define two hypotheses regarding the effect of government bonds and the European Central Bank (ECB) on interest rates, trying to determine whose relative effect was greater of the two. Combining principal component analysis and regression analysis, the authors determine that government bonds have a limited effect on interest rates, whereas ECB’s effect is much more significant. The results suggest a complex dynamic between fiscal and monetary policy, highlighting proactive government measures for stimulating investments and development of the Croatian capital market.
Copyright (c) 2025 Lucija Rašić, Noa Hinger https://creativecommons.org/licenses/by-nc/4.0
Guiding through uncertainty: nowcasting the GDP of Croatia
This paper addresses the creation of a nowcasting model for economic activity in Croatia. While considering the characteristics of a small, open economy incorporated in a larger economic unit, it emphasises, alongside domestic hard and soft indicators, the importance of using foreign indicators of short-term movements. By comparing factor models, including both the static method of principal components and dynamic methods of quasi-maximum likelihood and two-step estimation approaches, the paper aims to identify a model that accurately describes short-term GDP movements. The results indicate that structural factor extraction from two or three clusters of indicators combined with the simple method of principal components yields the best results. Such timely insights are crucial for decision-making at all levels, especially for fiscal policymakers in a recent entrant to the monetary union.
Copyright (c) 2025 Mateo Ljubišić https://creativecommons.org/licenses/by-nc/4.0
The role of economic and political factors in budget forecasting errors: evidence from Turkey’s metropolitan municipalities for the period 2011-2022
This study examines budget forecasting errors in 15 major metropolitan municipalities in Turkey for the period 2011-2022 using a random effects panel regression model. The dependent variables include budget surplus, inflation, population growth, unemployment, GDP per capita, export-to-import ratio, mayor’s political party, mayor’s re-candidacy status, and election periods. Findings show that in the revenue model, budget surplus and unemployment reduce errors, while inflation, population growth, and election years increase them. In the expenditure model, unemployment reduces errors, whereas inflation and election periods increase them. This research is the first of its kind in Turkey, aiming to fill a gap in the literature by identifying factors contributing to budget errors. It highlights the importance of local influences on budget accuracy and seeks to guide budget preparers in improving their forecasts, ultimately enhancing fiscal management and public service delivery.
Copyright (c) 2025 Berat Kara https://creativecommons.org/licenses/by-nc/4.0
Central bank balance sheet and inflation in a euroised small open economy: a cointegrated SVAR analysis
The Bank of Albania has not employed traditional balance sheet policies; however, it has taken a series of policy actions that have increased the proportion of nonborrowed relative to borrowed components of the monetary base and its balance sheet liabilities. We aim to investigate whether these changes in the structure of the central bank balance sheet gave rise to additional monetary shocks with direct effects on inflation. The hypothesis is tested by estimating a small structural VAR model with cointegrated I(1) and I(0) policy and non-policy variables. We identify long-run restrictions based on the embedded structure of the data generating process, as defined by cointegration relationships. Our findings suggest that an increase in the share of non-borrowed components of the monetary base has direct and indirect positive effects on inflation. We argue that the identification of this monetary shock has significant implications for the central bank and its monetary policy.
Copyright (c) 2024 Gent Sejko, Altin Tanku https://creativecommons.org/licenses/by-nc/4.0
Fiscal policy burden accruing from public debt accumulation: theoretical effect on growth and empirical evidence
The study investigates how fiscal policy burden accruing from public debt affects economic growth in Sub-Saharan African countries over the period 1990-2022. It employs the generalized method of moments and auto-regressive distributed lag methodologies, which reveal that fiscal policy burden significantly impaired economic growth during the period. The results, therefore, support the view that the growth benefits of fiscal policy are constrained by large accumulations of public debt, validating the concern raised by multilateral institutions about the economic consequences of large and excessive debt accumulation. Furthermore, the results corroborate the Classical theory prediction of stagnation in long-run growth when existing public debt is too large for fiscal policy to accommodate. Therefore, interventions are required to contain the fiscal policy burden, in order to foster economic growth. Such policy interventions should aim at reducing the level of public debt and increasing the fiscal revenue from non-tax sources.
Copyright (c) 2025 Samson Edo, Osaro Oigiangbe https://creativecommons.org/licenses/by-nc/4.0
Analysis of internal communication in public companies in Croatia
The paper analyses the effectiveness of internal communication in public companies in Croatia and its impact on employee satisfaction after market changes. Research on internal communication and its effects on employee satisfaction was conducted with a sample of 1,342 respondents from three large public companies (these companies employ more than 23% of the total workforce belonging to large public companies in Croatia). The results obtained from a hierarchical regression analysis indicate that satisfaction with internal communication (44.3%) is more significantly related to overall job satisfaction than sociodemographic characteristics (total length of service in the company, employment type, managerial position in the company, sex, age group and highest level of education) (5.2%). In conclusion, when employees in public companies in Croatia receive clear information about their organization’s goals, expectations, results, and progress, they feel informed and engaged, which positively influences their job satisfaction.
Copyright (c) 2025 Josip Poljak https://creativecommons.org/licenses/by-nc/4.0
Intragenerational occupational mobility: the effect of crisis and overeducation on career mobility in a segmented labour market
This paper explores occupational and employment mobility over the previous decade in Greece and contributes to a better understanding of the consequences of the sovereign debt crisis. Our findings suggest that downward mobility was the common trend in intra-generational occupational mobility during the first period of the crisis. Significant changes occurred between 2011-2015. The recovery is apparent during the third bailout program with higher upward occupational and employment movements. However, polarization in the middle-paid professions was noticed. Additionally, this paper highlights the role of education in career mobility and the problem of overeducation. The empirical results reveal that tertiary graduates were more likely to move downward during the first period of the crisis even though overeducated workers had more possibilities to experience upward mobility. Overeducation in Greece seems to be the result of the increasing number of tertiary graduates, low proportion of high-skilled job positions and high levels of unemployment.
Copyright (c) 2025 Georgios Kitsoleris, Dr Luong Tuan Anh https://creativecommons.org/licenses/by-nc/4.0
How compliant are state-owned enterprises in Austria and Slovenia with regard to their sustainability reports?
In recent years, the integration of corporate, environmental and social factors into the management of business has been intensively promoted. Our paper focuses on the quality of the sustainability reports (SR) of state-owned enterprises (SOEs). The methodological approach is based on the framework for content analysis provided by Global Reporting Initiative (GRI) standards and Sustainable Development Goals (SDGs) disclosure in non-financial/SR, using the translation table for linking SDGs and GRI Standards to evaluate the status of SDG compliance. The results reveal that companies in both countries generally report most intensively in the economic segment, as far as GRI standards and SDGs are concerned, exposing the economic value in the Benington (2011) theoretical model. Comparatively, Slovenian SOEs’ SRs disclose on average a lower percentage of GRI standards in all four segments (general, economic, environmental, and social) than Austrian SOEs, while more than 70% of SDG 4 is reported in Slovenia.
Copyright (c) 2024 Tatjana Stanimirović, Philumena Bauer, Dorothea Greiling https://creativecommons.org/licenses/by-nc/4.0
Uncertainty, populism and foreign direct investment: the state of play in economic research
This paper provides a synthesized, critical overview of the latest economic literature regarding the linkage between three concepts – uncertainty, populism and foreign direct investment. It starts with summarising ways to measure uncertainty in a direct and an indirect manner (with their respective advantages and limitations) and estimate its effects on populism and foreign direct investment. Later on, the paper focuses on the link between populism and foreign direct investment, exploring the possible role of uncertainty in this context. While heightened uncertainty and populism are typically associated with negative economic (including a decline in foreign direct investment) and non-economic outcomes, the nature of these effects and their interpretation are complex and leave room for further investigation. The implications of the research on this topic are wide reaching not only for economic stakeholders, but also for public sector policy practitioners.
Copyright (c) 2024 Marijana Andrijić https://creativecommons.org/licenses/by-nc/4.0
Thriving amidst uncertainty: a financial blueprint for the public budget
This research explores strategies for thriving amidst uncertainty through a financial blueprint for public budgets, focusing on key factors like budgetary resilience (BR), stability (BS), sustainability (BSu), empowerment (BE), preparedness (BP), governance (BG), inclusion priorities (BIP), and agility (BA). Analysing data from 1,200 respondents and audited financial reports for 2023/24, statistical methods such as exploratory and confirmatory factorial analysis, and Cronbach’s Alpha were used to assess relationships among these factors. Results highlight BR’s role in economic development, while BS and BSu enhance financial stability and reduce debt. BE fosters employment and social stability, emphasizing robust planning. BP ensures accurate management in uncertain conditions, and BG reduces corruption and strengthens accountability. These insights offer valuable guidance for policymakers and financial managers aiming to enhance public budget stability and sustainability.
Copyright (c) 2024 Enkeleda Lulaj https://creativecommons.org/licenses/by-nc/4.0
Bank profitability in the euro area in times of high inflation
Following the shift in the European Central Bank's (ECB) monetary policy in mid2022, the interest income of euro area banks rose markedly, boosting their overall profitability. This paper shows that the positive impact of higher interest rates on bank profitability was amplified by the existence of abundant excess liquidity. In particular, since euro area banks held large stocks of excess liquidity, they were able to earn substantial risk-free interest income by simply putting their liquidity into the ECB’s deposit facility. In addition, due to the prolonged period of monetary expansion and zero interest rates on time deposits, the share of overnight deposits in total bank liabilities had increased significantly by the time the ECB tightened its policy. Since overnight deposits typically respond slowly to policy rate changes, such a structure of funding enabled euro area banks to enjoy comfortable net interest margins for some time.
Copyright (c) 2025 Mislav Brkić https://creativecommons.org/licenses/by-nc/4.0