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Empirical assessment of stabilization effects of fiscal policy in Croatia

Author

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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)

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.

Suggested Citation

  • Ana Grdović Gnip, 2013. "Empirical assessment of stabilization effects of fiscal policy in Croatia," EFZG Working Papers Series 1306, Faculty of Economics and Business, University of Zagreb.
    • Handle: RePEc:zag:wpaper:1306
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    Citations

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    Cited by:

    1. Milan Deskar-Škrbić & Hrvoje Šimović, 2017. "The effectiveness of fiscal spending in Croatia, Slovenia and Serbia: the role of trade openness and public debt level," Post-Communist Economies, Taylor & Francis Journals, vol. 29(3), pages 336-358, July.
    2. Holland, Marcio & Marçal, Emerson & de Prince, Diogo, 2020. "Is fiscal policy effective in Brazil? An empirical analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 40-52.
    3. Agata Szymańska, 2018. "Wpływ polityki fiskalnej na PKB w krajach Unii Europejskiej spoza strefy euro," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 49-74.
    4. Kashif Munir & Nimra Riaz, 2019. "Fiscal Policy and Macroecomonic Stability in South Asian Countries," Hacienda Pública Española / Review of Public Economics, IEF, vol. 228(1), pages 13-33, March.
    5. Milan Deskar Škrbić & Hrvoje Šimović, 2015. "The size and determinants of fiscal multipliers in Western Balkans: comparing Croatia, Slovenia and Serbia," EFZG Working Papers Series 1510, Faculty of Economics and Business, University of Zagreb.
    6. Masten, Igor & Grdović Gnip, Ana, 2019. "Macroeconomic effects of public investment in South-East Europe," Journal of Policy Modeling, Elsevier, vol. 41(6), pages 1179-1194.
    7. Sayed O. M. Timuno & Joel Hinaunye Eita & Lanouar Charfeddine, 2020. "Towards an effective fiscal stimulus: Evidence from Botswana," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1790948-179, January.
    8. Milan Deskar-Škrbiæ, 2018. "Dynamic effects of fiscal policy in Croatia: confronting New-Keynesian SOE theory with empirics," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(1), pages 83-102.
    9. Xi Wang & Jiayang Li & Guangbin Zhang, 2022. "Mixed Monetary–Fiscal Policies and Macroeconomic Fluctuations: An Analysis Based on the Dynamic Stochastic General Equilibrium Model," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(2), pages 167-196, March.

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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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