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Empirical assessment of stabilization effects of fiscal policy in Croatia

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  • Ana Grdović Gnip

    ()
    (Faculty of Economics & Tourism Dr. Mijo Mirković, Juraj Dobrila University of Pula and Faculty of Economics, University of Ljubljana)

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Abstract

The aim of this paper is to assess the stabilization effects of fiscal policy in Croatia in a structural vector autoregression framework as proposed by Blanchard and Perotti (2002). Empirical studies of fiscal policy effects show that results are contradictory and do not unanimously agree, except for one fact: a positive government spending shock has a positive effect on output. This study inspects the effects of government spending and tax shocks on a set of macroeconomic variables (output, prices, interest rates, private consumption, private investment, employment and wages). Results prove that the fiscal transmission mechanism in Croatia works mainly in a Keynesian manner. Output reacts negatively to a tax shock and positively to government spending shock. The output multiplier is above 2 at impact and the effect is significant throught the whole time span. The negative effect of the tax shock is mostly driven by indirect (not direct) taxes, while the positive effect of a government spending shock is influenced by government consumption and government investment, but the effect of the latter is more significant when private consumption and private investment responses are observed.

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File URL: http://web.efzg.hr/repec/pdf/Clanak%2013-06.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by Faculty of Economics and Business, University of Zagreb in its series EFZG Working Papers Series with number 1306.

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Length: 33
Date of creation: 13 Nov 2013
Date of revision:
Handle: RePEc:zag:wpaper:1306

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Keywords: fiscal policy; fiscal multiplier; spending shock; tax shock; SVAR; Croatia;

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