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How to Achieve the Take-off into Sustained Growth: A Case Study for Slovenia

Author

Listed:
  • Reinhard Neck

    (Alpen-Adria-Universität Klagenfurt)

  • Klaus Weyerstrass

    (Alpen-Adria-Universität Klagenfurt
    Institute for Advanced Studies)

  • Dmitri Blueschke

    (Alpen-Adria-Universität Klagenfurt)

  • Boris Majcen

    (Institute for Economic Research)

  • Andrej Srakar

    (Institute for Economic Research
    University of Ljubljana)

  • Miroslav Verbič

    (Institute for Economic Research
    University of Ljubljana)

Abstract

In this paper, we show that successful policy aimed at enhancing economic growth in the long run must be based on policies which improve human capital and technological progress. This is applied to Slovenia, a small open economy in the European Union and the Euro Area. In particular, we investigate how fiscal policies should be designed to support economic growth without violating the European Union Stability and Growth Pact. Using the SLOPOL10 model, an econometric model of the Slovenian economy, we analyse the effects of different fiscal policies in Slovenia over the next few years by means of simulations. The fiscal policy multipliers of the Slovenian economy are small and short-lived, which renders demand-side expansionary fiscal policies inappropriate as a means of achieving higher growth. However, if an increase in government expenditures directly related to technological progress is implemented (such as better funding for tertiary education or subsidies for firms’ investments in research and development), this can trigger a path of output which is permanently higher than that of the baseline simulation. Reducing income taxes and social security contributions has strong positive effects on employment. This result shows that the key to prosperity and sustained growth is investment in human capital and technology, also for a small open economy like Slovenia.

Suggested Citation

  • Reinhard Neck & Klaus Weyerstrass & Dmitri Blueschke & Boris Majcen & Andrej Srakar & Miroslav Verbič, 2018. "How to Achieve the Take-off into Sustained Growth: A Case Study for Slovenia," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(2), pages 109-121, May.
    • Handle: RePEc:kap:iaecre:v:24:y:2018:i:2:d:10.1007_s11294-018-9678-8
    DOI: 10.1007/s11294-018-9678-8
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    References listed on IDEAS

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    1. Karel Havik & Kieran Mc Morrow & Fabrice Orlandi & Christophe Planas & Rafal Raciborski & Werner Roeger & Alessandro Rossi & Anna Thum-Thysen & Valerie Vandermeulen, 2014. "The Production Function Methodology for Calculating Potential Growth Rates & Output Gaps," European Economy - Economic Papers 2008 - 2015 535, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Klaus Weyerstrass & Daniela Grozea-Helmenstein, 2013. "A Macroeconometric Model for Serbia," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(2), pages 85-106, May.
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    Cited by:

    1. Reinhard Neck & Klaus Weyerstrass & Dmitri Blueschke & Miroslav Verbič, 2021. "Demand-side or supply-side stabilisation policies in a small euro area economy: a case study for Slovenia," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(3), pages 593-610, August.
    2. Klaus Weyerstrass & Dmitri Blueschke & Reinhard Neck & Miroslav Verbič, 2023. "Dealing with the COVID-19 pandemic in Slovenia: simulations with a macroeconometric model," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(4), pages 853-881, November.

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    More about this item

    Keywords

    Macroeconomics; Stabilization policy; Fiscal policy; Tax policy; Public expenditures; Demand management; Supply side policies; Slovenia; Public debt;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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