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Impact of public debt (un)sustainability on fiscal policy effectiveness in Croatia

Author

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  • Hrvoje Šimović

    (Faculty of Economics and Business, University of Zagreb)

Abstract

This paper analyses the impact of public debt level and (un)sustainability on fiscal spending effectiveness in Croatia. Public debt sustainability is analyzed using standard indicators of fiscal vulnerability and fiscal stability, accompanied with identification of regime changes in the public debt trajectory. Public debt sustainability analysis is used to analyze trends and tendencies, as well as to indicate periods of fiscal unsustainability in Croatia in period from 2001 to 2015. Using switching regression and SVAR approach it is also empirically tested how public debt level affects the effectiveness of fiscal policy in Croatia in the same period. Results show a negative impact of recession on public debt sustainability and confirm the main thesis that public debt level significantly affects and reduces the effectiveness of fiscal policy in Croatia.

Suggested Citation

  • Hrvoje Šimović, 2017. "Impact of public debt (un)sustainability on fiscal policy effectiveness in Croatia," EFZG Working Papers Series 1705, Faculty of Economics and Business, University of Zagreb.
    • Handle: RePEc:zag:wpaper:1705
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    References listed on IDEAS

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    1. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
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    5. Milan Deskar-Škrbić & Hrvoje Šimović & Tomislav Ćorić, 2014. "The effects of fiscal policy in a small open transition economy: The case of Croatia," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 133-152, November.
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    More about this item

    Keywords

    public debt; fiscal policy; Croatia;
    All these keywords.

    JEL classification:

    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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