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The effects of fiscal policy in a small open transition economy: The case of Croatia

Milan Deskar-Škrbić, Hrvoje Šimović () and Tomislav Ćorić ()
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Tomislav Ćorić: University of Zagreb, Faculty of Economics & Business, Zagreb, Croatia

Acta Oeconomica, 2014, vol. 64, issue supplement1, 133-152

Abstract: In this paper, we use the structural VAR model to analyse the dynamic effects of (discretionary) fiscal shocks on the economic activity of the private sector in Croatia between 2000 and 2012. Due to the fact that Croatia is a small open transition economy, we assume that shocks of foreign origin can have notable effects on its performance. Therefore, the original Blanchard-Perotti identification method is extended by introducing variables that represent external (foreign) demand shocks. The results show that government spending has a positive and statistically significant effect on private aggregate demand and private consumption, and that net indirect taxes have a negative and statistically significant effect on private consumption and private investment.

Keywords: fiscal policy; small open economy; Croatia; SVAR (search for similar items in EconPapers)
JEL-codes: C32 E62 H20 H30 H50 (search for similar items in EconPapers)
Date: 2014
Note: This work has been supported in part by the Croatian Science Foundation under the project number IP-2013-11-8174.
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