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Trade-Off of Fiscal Austerity in the European Debt Crisis in Slovenia

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  • Reinhard Neck
  • Dmitri Blueschke
  • Klaus Weyerstrass

Abstract

In this paper, we investigate the trade-off between the need for budget consolidation and the desirability of expansionary fiscal policies as a means of demand management by simulating alternative scenarios with a macroeconometric model of the Slovenian economy. The simulations show that for the Slovenian economy, an expansionary fiscal policy is neither feasible nor desirable: it leads to unsustainable government debt and has only weak effects on income and employment. It turns out that the stability program of the Slovenian government and the related policy prescriptions of the EU lead to reasonable results in terms of public debt without strong adverse effects on output or unemployment. An expansionary fiscal policy is not desirable, as it results in unsustainable public debt without enhancing employment and output sufficiently. Copyright International Atlantic Economic Society 2013

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  • Reinhard Neck & Dmitri Blueschke & Klaus Weyerstrass, 2013. "Trade-Off of Fiscal Austerity in the European Debt Crisis in Slovenia," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(4), pages 367-380, November.
    • Handle: RePEc:kap:iaecre:v:19:y:2013:i:4:p:367-380:10.1007/s11294-013-9438-8
    DOI: 10.1007/s11294-013-9438-8
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    References listed on IDEAS

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    1. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2010. "New Keynesian versus old Keynesian government spending multipliers," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 281-295, March.
    2. Coenen, Günter & Mohr, Matthias & Straub, Roland, 2008. "Fiscal consolidation in the euro area: Long-run benefits and short-run costs," Economic Modelling, Elsevier, vol. 25(5), pages 912-932, September.
    3. Reinhard Neck & Dmitri Blueschke & Klaus Weyerstrass, 2011. "Optimal macroeconomic policies in a financial and economic crisis: a case study for Slovenia," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(3), pages 435-459, July.
    4. Günter Coenen & Christopher J. Erceg & Charles Freedman & Davide Furceri & Michael Kumhof & René Lalonde & Douglas Laxton & Jesper Lindé & Annabelle Mourougane & Dirk Muir & Susanna Mursula & Carlos d, 2012. "Effects of Fiscal Stimulus in Structural Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 22-68, January.
    5. Dmitri Blueschke & Viktoria Blueschke-Nikolaeva & Reinhard Neck & Klaus Weyerstrass, 2012. "Macroeconomic Policies for Slovenia after the “Great Recession”," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 2(2), pages 54-93, December.
    6. John B. Taylor, 2009. "The Lack of an Empirical Rationale for a Revival of Discretionary Fiscal Policy," American Economic Review, American Economic Association, vol. 99(2), pages 550-555, May.
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    9. Reinhard Neck & Dmitri Blueschke & Klaus Weyerstrass, 2012. "Macroeconomic Policies for Slovenia in the “Great Recession”," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(4), pages 345-366, November.
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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. Alina Cristina NUTA & Rodica PRIPOAIE & Florian Marcel NUTA, 2014. "Fiscal Policy In And After Crises," Journal of Public Administration, Finance and Law, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 0(Special i), pages 92-95, September.

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    More about this item

    Keywords

    Macroeconomics; Fiscal policy; Economics of transition; Slovenia; Crisis; Public debt; E17; E37; H63;
    All these keywords.

    JEL classification:

    • 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
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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