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Impact of Public Debt Sustainability on Fiscal Policy in Croatia

Author

Listed:
  • Hrvoje Šimović

    (Faculty of Economics & Business, University of Zagreb, Croatia)

Abstract

This paper analyses the impact of public debt level and its (un)sustainability on fiscal policy in Croatia in the 2001–2015 period. A switching regression approach is used to distinguish different regimes when government spending, i.e. fiscal policy has more or less impact on economic growth during different cycles. In the second part, the structural VAR model is used to analyse the dynamic effects of government spending on domestic demand in Croatia. To observe the public debt effects on a fiscal policy, a “closed” model is compared with an “extended” model which includes a debtto- GDP indicator. Results show a negative impact of recession on public debt sustainability and confirm the main thesis that public debt level significantly affects and reduces the effectiveness of fiscal policy in Croatia.

Suggested Citation

  • Hrvoje Šimović, 2018. "Impact of Public Debt Sustainability on Fiscal Policy in Croatia," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 68(2), pages 231-244, June.
    • Handle: RePEc:aka:aoecon:v:68:y:2018:i:2:p:231-244
    Note: This work has been supported by the Croatian Science Foundation under project “Public Finance Sustainability on the Path to the Monetary Union – PuFiSuMU” No. IP-2016-06-4609.
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    More about this item

    Keywords

    public debt; fiscal policy; Croatia;
    All these keywords.

    JEL classification:

    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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