Republic of Estonia: Selected Issues

International Monetary Fund

No 2025/182, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper revisits fiscal multipliers for Estonia with a view to highlighting policy trade-offs and providing growth-friendly options for fiscal consolidation. The pandemic triggered a sharp and partly permanent increase in government spending. Demand for better quality and broader provision of public services has materialized, while climate and ageing-related spending pressures are set to intensify over time and geopolitical risks have triggered a sharp increase in defense spending. Despite the 2022–2024 protracted recession, Estonian authorities have responded to these pressures with two rounds of wide-ranging tax changes affecting personal and corporate income tax, value added tax, and excises, while spending cuts based on comprehensive spending reviews were enacted. Do these measures have significant short-term effects on growth? Granular estimates of fiscal multipliers by type of instrument—on both revenue and spending—can shed light on potential short-term output costs and underpin policy advice on specific instruments for fiscal consolidation. The results indicate that multiplier effects in Estonia are not negligible.

Pages: 59
Date: 2025-07-14
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