How Should Slovenia Design Fiscal Policies in the Government Debt Crisis?

ABSTRACT

We investigate how fiscal policies should be designed in Slovenia during the next few years. Using the SLOPOL model, an econometric model of the Slovenian economy, we analyze the effects of different fiscal policies using simulations and determine optimal fiscal policies for Slovenia. We show that the optimal design of fiscal policies is rather close to the austerity course as detailed in the Slovenian Stability Program, revealing the small scope of possible alternative fiscal stabilization policies available due to the relatively low effectiveness of the fiscal instruments with respect to their influence on the business cycle in the Slovenian economy.

KEY WORDS:

• crisis
• fiscal policy
• macroeconomics
• public debt
• Slovenia

Acknowledgments

Thanks are due to Viktoria Blueschke-Nikolaeva for collaboration on the OPTCON algorithm and to an anonymous referee for many helpful suggestions. The usual caveat applies.

Notes

1. These raw weights have to be normalized according to the characteristics of the corresponding time series (see Blueschke (2014) for more details).