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Effects of Fiscal Policy in a Small Open Economy: Evidence of Croatia

Milan Deskar-Škrbić, Hrvoje Šimović () and Tomislav Coric

No 1302, EFZG Working Papers Series from Faculty of Economics and Business, University of Zagreb

Abstract: In this paper we use structural VAR model to analyze dynamic effects of fiscal shocks on economic activity in Croatia from 2000Q1-2012Q2. Due to the fact that Croatia is a small open economy we assume that shocks of foreign origination can have notable effects on its performance. Therefore, original Blanchard-Perotti (2002) model is extended by introducing variables that represent external (foreign) demand shocks. The results show that the government spending has a positive and statistically significant effect on private aggregate demand and private consumption, and net (indirect) taxes have a negative and statistically significant effect on private consumption and private AD. It should also be noted that this paper represents first attempt of estimating size of fiscal multipliers in Croatia in open economy model.

Keywords: fiscal policy; small open economy; Croatia; SVAR (search for similar items in EconPapers)
JEL-codes: E62 C32 H30 H20 H50 (search for similar items in EconPapers)
Pages: 21
Date: 2013-10-07
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-tra
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http://web.efzg.hr/repec/pdf/Clanak%2013-02.pdf First version, 2013 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:zag:wpaper:1302

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