Budget consolidation in a small open economy: a case study for Slovenia. Issue 3 (4th May 2019)

• Record Type: Journal Article
• Authors: Blueschke, Dmitri; Weyerstrass, Klaus; Neck, Reinhard; Majcen, Boris; Srakar, Andrej; Verbič, Miroslav
• Is Part Of: Post-communist economies. Volume 31:Issue 3(2019)
• Page Start: 325
• Page End: 348
• Publication Date: 2019-05-04
• Subjects: Macroeconomics -- fiscal policy -- Slovenia -- crisis -- public debt; Post-communism -- Economic aspects -- Periodicals; Russia (Federation) -- Economic conditions -- Periodicals; Europe, Eastern -- Economic conditions -- Periodicals; 330.91717
• DOI: 10.1080/14631377.2018.1537735
• Languages: English
• ISSNs: 1463-1377

Abstract

ABSTRACT: 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.