Budget consolidation in a small open economy: a case study for Slovenia

Blueschke, Dmitri; Weyerstrass, KlausORCID: https://orcid.org/0000-0002-5659-8991; Neck, Reinhard; Majcen, Boris; Srakar, Andrej and Verbic, Miroslav (2019) Budget consolidation in a small open economy: a case study for Slovenia. Post-Communist Economies, 31 (3), pp. 325-348. DOI: 10.1080/14631377.2018.1537735

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In this article, we use the macroeconometric model SLOPOL10 to calculate simulations of the development of the Slovenian economy until 2030. Starting from the present favourable prospects of the European economies, the forecast is very optimistic but it can nevertheless be improved by optimal fiscal policies as calculated using the OPTCON2 algorithm. If a negative shock to world trade of a size comparable to the Great Recession occurs, it will entail a decline in GDP and a slow recovery. In this case, optimal fiscal policies should not act in an expansionary way as the effectiveness of fiscal policy with respect to output and employment is rather limited in a small open economy like Slovenia. Instead, the goal of budget consolidation will call for a more restrictive fiscal policy, at least if the shock is temporary.

Item Type: Article in Academic Journal
Keywords: Macroeconomics; fiscal policy; Slovenia; crisis; public debt
Funders: Austrian Science Foundation FWF, Slovenian Research Agency ARRS
Classification Codes (e.g. JEL): E17; E37; H63
Research Units: Former Research Units (until 2020) > Macroeconomics and Economic Policy
Date Deposited: 15 Jan 2019 08:33
Last Modified: 21 Feb 2024 12:44
DOI: 10.1080/14631377.2018.1537735
ISSN: 1463-1377
URI: https://irihs.ihs.ac.at/id/eprint/4880

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