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Fiscal Sustainability of Macedonia on its path towards the EU

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  • Trenovski, Borce
  • Tashevska, Biljana

Abstract

The 2008 global economic crisis exposed the importance of state fiscal intervention, and more than two decades of neoclassic paradigm and a non-fiscal domination paradigm, it brought back fiscal activism and the Keynesian ideas and measures at the top of government agendas. However, drastic worsening of many developed nations’ fiscal state, as a result of a decreased economic activityand of various fiscal packages aimed at the financial sector and the economy as a whole, complemented by budgetary pressures from an aging population, activated debates on the size, sustainability and the consequences of budget deficits and public dept. Recent events, particularly the conditions created by the European debt crisis under which, some EU member states faced difficulties in access to markets, confirmed that the challenges of fiscal sustainability are not only long-term, and are not typical only of developing countries, but are a real problem for developed countries with a growing public debt, stagnant economic growth, unfavorable demographic trends and obligations passed on by the financial sector. This imposed the sustainability of public finances (important for the creation of sufficient fiscal space to tackle future unfavorable macroeconomic shocks and with costs associated with an aging population) as one of the most important macroeconomic subjects for EU member states and candidates, according to its importance in maintaining EU’s stability. The subject of fiscal sustainability is relevant for the Republic of Macedonia which has a relatively low but growing level of public debt, that from the beginning of the crisis until December 2015 grew more than 20pp of GDP and reached 46.5% of GDP (38% of GDP state debt). Estimation of fiscal sustainability is an infallible part of analysis carried out by international financial institutions (IMF, World Bank) in countries of interest, including Macedonia.This is particularly important taking into account the growth tempo of Macedonia’s debt, its structure, and efficiency of fiscal politics, one of the key indicators for assessment of our stability on the path towards the EU. In context of the above, this paper defines the concept of fiscal sustainability, presents the problem’s relevance for developed countries of the European debt crisis case, and lastly, elaborates Macedonia’s fiscal politics, public debt, and fiscal sustainability.

Suggested Citation

  • Trenovski, Borce & Tashevska, Biljana, 2016. "Fiscal Sustainability of Macedonia on its path towards the EU," MPRA Paper 76321, University Library of Munich, Germany, revised 2016.
    • Handle: RePEc:pra:mprapa:76321
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    References listed on IDEAS

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    1. Taki Fiti & Biljana Tashevska, 2013. "The European Debt Crisis And Its Implications On The Macedonian Economy," Journal Articles, Center For Economic Analyses, pages 25-42, June.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    3. Balassone, F. & Cunha, J. & Langenus, G. & Manzke, B. & Pavot, J. & Prammer, D. & Tommasino, P., 2008. "Fiscal sustainability and policy implications for the euro area," Working papers 225, Banque de France.
    4. Andrea F Presbitero, 2012. "Total Public Debt and Growth in Developing Countries," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 24(4), pages 606-626, September.
    5. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
    6. Gianluca Cafiso & Roberto Cellini, 2012. "Evidence on Fiscal Consolidations and the Evolution of Public Debt in Europe," CESifo Working Paper Series 4027, CESifo.
    7. Ernest Gnan & Ewald Nowotny & András Simor & Iain Begg & Andrew Bosomworth & Ugo Panizza & Elga Bartsch & Moritz Kraemer, 2013. "The Interaction of Political, Fiscal and Financial Stability: Lessons from the Crisis," SUERF Studies, SUERF - The European Money and Finance Forum, number 2013/1 edited by Ernest Gnan, May.
    8. Borce Trenovski & Biljana Tashevska, 2015. "Fiscal or monetary dominance in a small, open economy with fixed exchange rate – the case of the Republic of Macedonia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 33(1), pages 125-145.
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    Cited by:

    1. Trenovski, Borce & Mijovic-Spasova, Tamara, 2018. ""Public Debt in Southeast Europe” – Why to enable public participation?," MPRA Paper 88381, University Library of Munich, Germany.
    2. Noveski Martin, 2018. "Macroeconomic effects of the budget deficit in the Republic of Macedonia," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 4(2), pages 5-14, November.

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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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