Guiding through uncertainty: nowcasting the GDP of Croatia

Mateo Ljubisic ()
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Mateo Ljubisic: Croatian National Bank, Zagreb, Croatia

Public Sector Economics, 2025, vol. 49, issue 2, 185-211

Abstract: Given the importance of good governance for the efficiency of government spending, this study reveals the role of governance quality in fiscal policy effectiveness during the COVID-19 outbreak. Using cross-country threshold regressions for 144 countries, we find that a stringent lockdown policy (i) does not lead to economic downturn in countries with larger fiscal stimulus, (ii) leads countries with poor governance quality to head toward economic slowdown even with higher stimulus packages, (iii) does contribute to economic recovery even in countries with smaller fiscal packages if accompanied by higher governance quality. Overall, the results suggest that good governance helps achieve economic recovery, whereas an increase in the size of the fiscal stimulus can, at best, help protect against economic slowdown. The empirical findings have several implications for policymakers in countries where the blow hits the hardest, as well as for fiscal governance framework.

Keywords: fiscal stimulus; governance quality; COVID-19 (search for similar items in EconPapers)
JEL-codes: C32 C38 C53 E37 E60 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ipf:psejou:v:49:y:2025:i:2:p:185-211

DOI: 10.3326/pse.49.2.1

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