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Republic of Estonia: Selected Issues

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  • International Monetary Fund

Abstract

This Selected Issues paper revisits fiscal multipliers for Estonia with a view to highlighting policy trade-offs and providing growth-friendly options for fiscal consolidation. The pandemic triggered a sharp and partly permanent increase in government spending. Demand for better quality and broader provision of public services has materialized, while climate and ageing-related spending pressures are set to intensify over time and geopolitical risks have triggered a sharp increase in defense spending. Despite the 2022–2024 protracted recession, Estonian authorities have responded to these pressures with two rounds of wide-ranging tax changes affecting personal and corporate income tax, value added tax, and excises, while spending cuts based on comprehensive spending reviews were enacted. Do these measures have significant short-term effects on growth? Granular estimates of fiscal multipliers by type of instrument—on both revenue and spending—can shed light on potential short-term output costs and underpin policy advice on specific instruments for fiscal consolidation. The results indicate that multiplier effects in Estonia are not negligible.

Suggested Citation

  • International Monetary Fund, 2025. "Republic of Estonia: Selected Issues," IMF Staff Country Reports 2025/182, International Monetary Fund.
    • Handle: RePEc:imf:imfscr:2025/182
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