Fiscal Policy Stance Reaction to the Financial/Economic Crisis in the EMU: The Case of Slovenia

The article evaluates the current economic crisis’ impact on changes in the adoption of fiscal policy measures for 16 euro-area countries in the 2004–2012 period and compares those changes with fiscal policy measures introduced in Slovenia. In general, the results suggest that the adopted fiscal policy measures in most euro-area countries were more expansionary in the period before the current economic crisis started. The evaluation of the fiscal stance in Slovenia suggests expansionary and pro- cyclical fiscal behaviour during the 2005–2008 period, whereas the response of the fiscal authorities in Slovenia in 2011 and 2012 due to fiscal consolidation was more restrictive and pro-cyclical. Finally, we emphasize that inconsistent fiscal policy without structural reforms also being carried out may lead to a further deterioration of the fiscal position and macroeconomic situation of euro-area countries, including during a period of cyclical recovery

Fiscal Policy Stance in the European Union: The Impact of the Euro

In the recent years there has been an intense discussion whether the actual behaviour of fiscal authorities is consistent with cyclical stabilization objectives. The question of the appropriate fiscal policy is gaining recognition especially for the countries of the euro area after entering the European Monetary Union (EMU). Therefore, the aim of this paper is to evaluate the activity of the fiscal policy before and after the entrance to the euro zone for each individual EMU country in 1995–2010 period. For this purpose we will use the cyclical adjusted balance, which is the common tool used to estimate fiscal policy stance. The analysis of the cyclically adjusted balance gives an additional insight into the former activity arrangements of the fiscal policy, which contributes to gauge the ex-post estimation of the fiscal policy. On this base we can determine the causes of general government budgets imbalance in the past. Despite this fact, we should be aware of some caveats in the assessment of cyclical adjusted balance, which appear due the inconsistency in measurement of output gap and potential GDP growth. To evaluate pro-cyclical or countercyclical fiscal policy stance we compare the dynamic evaluation of the cyclically adjusted balance and output gap. Namely, changes of the cyclically adjusted balance in consecutive years indicate the orientation of fiscal policy, i.e. the fiscal impulse. By comparing the change in the cyclically adjusted balance and output gap between individual years, which indicates fluctuations in the economic cycle, it is possible to assess the orientation of fiscal policy, i.e. the fiscal position. The fiscal policy can be considered as countercyclical if it is expansive in the situation of negative output gap and restrictive in the situation, when the actual growth of GDP is above its potential rate. On the other hand, fiscal policy is characterized to be pro-cyclical if in the situation of negative output gap the government uses restrictive fiscal instruments and when the fiscal policy reacts expansionary in the situation of positive output gap, where the actual output exceeds the estimated potential GDP. In the empirical analysis we evaluate the fiscal policy stance for each country of the euro area. In the assessment of government behaviour we cover 14 countries in the 1995–2010 period. The results of the analysis generally confirm that the fiscal policy in most euro-area member states became more expansionary in the period after entering the EMU. Moreover, these preliminary findings were partly confirmed by a statistical analysis which shows statistically significant differences in expansionary fiscal policy between the aforementioned sub-periods. In addition, we might also conclude the average fiscal stance is expansionary when actual output is above its potential level, which implies a pro-cyclical bias in times of prosperity, and that the fiscal stance tends to be predominantly counter-cyclical when actual output is below its potential level. These conclusions can be associated with asymmetric fiscal behaviour after entering the euro area because the response of fiscal authorities to cyclical conditions in the economy depends on whether good or bad times are prevailing. These assertions reflect some conclusions made in other similar studies

Public Policy Design and Implementation in Slovenia

Public policy design and implementation is a complex process, and so decision makers try to monitor all of the policy lifecycle stages in a particular policy domain. However, the question of coherent integration of various policy activities arises, including agenda-setting, ex-ante evaluation, formulation, decision-making, implementation, ex-post evaluation of individual policies, sector-specific ones, and even horizontal ones. Therefore, it is important to investigate and understand the reasons why an individual country, such as Slovenia, does not exploit all potential aspects of carrying out policy activities in a systematic and coherent manner. This article explores and analyzes Slovenian practice in policy design based on an in-depth empirical study among key public policyholders and decision makers. Furthermore, the authors identify the key success factors that facilitate or inhibit the development and progress of public policies, programs, and projects (PPPP) in Slovenia. The key findings indicate a particular lack of a professional policy unit to monitor the process holistically and the absence of ex-post evaluation. A need for a systemic solution in public policy design is established, which would merge different authorities’ efforts, epistemic communities, and the public in developing a structural multilevel model for good public governance

Revisiting the role of public debt in economic growth: The case of OECD countries

The paper empirically explores the factor of public debt which considerably changes the transmission mechanism of fiscal policy effects to economic activity in the short term. We examined and evaluate the direct effect of higher indebtedness in the public sector on economic growth for a panel dataset of overall 36 countries (25 EU member states and 11 OECD countries). Our examination will shed light on the current debt problem by identifying a possible non-linear relationship between the level of public debt and economic growth, with an explicit focus to determine the threshold values for our sample of countries. Our sample is divided into subgroups distinguishing between so-called developed, covering the period 1980–2010, and emerging economies, covering the period 1995–2010. Extending our previous research we are particularly interested in the existence of a non-linear impact of government debt on the behaviour of GDP growth. In order to account for the impact of the level of the debt-to-GDP ratio on the real growth rate of GDP, we employ a panel estimation on a generalized economic growth model augmented with a debt variable, while also considering some methodological issues like the problems of heterogeneity and endogeneity. The results confirm the general theoretical assumption that at low levels of public debt the impact on growth is positive, whereas beyond a certain debt turning point a negative effect on growth prevails. Further, we calculated that the debt-to-GDP turning point, where the positive effect of accumulated public debt inverts into a negative effect, is roughly between 90% and 94% for developed economies. Yet for emerging countries the debt-to-GDP turning point is lower, namely between 44% and 45%. Therefore, we can confirm our hypothesis that the threshold value for emerging is lower than for the developed in our sample

Revisiting the role of public debt in economic growth: The case of OECD countries

The paper empirically explores the factor of public debt which considerably changes the transmission mechanism of fiscal policy effects to economic activity in the short term. We examined and evaluate the direct effect of higher indebtedness in the public sector on economic growth for a panel dataset of overall 36 countries (25 EU member states and 11 OECD countries). Our examination will shed light on the current debt problem by identifying a possible non-linear relationship between the level of public debt and economic growth, with an explicit focus to determine the threshold values for our sample of countries. Our sample is divided into subgroups distinguishing between so-called developed, covering the period 1980–2010, and emerging economies, covering the period 1995–2010. Extending our previous research we are particularly interested in the existence of a non-linear impact of government debt on the behaviour of GDP growth. In order to account for the impact of the level of the debt-to-GDP ratio on the real growth rate of GDP, we employ a panel estimation on a generalized economic growth model augmented with a debt variable, while also considering some methodological issues like the problems of heterogeneity and endogeneity. The results confirm the general theoretical assumption that at low levels of public debt the impact on growth is positive, whereas beyond a certain debt turning point a negative effect on growth prevails. Further, we calculated that the debt-to-GDP turning point, where the positive effect of accumulated public debt inverts into a negative effect, is roughly between 90% and 94% for developed economies. Yet for emerging countries the debt-to-GDP turning point is lower, namely between 44% and 45%. Therefore, we can confirm our hypothesis that the threshold value for emerging is lower than for the developed in our sample

The Impact of Growing Public Debt on Economic Growth in the European Union

The paper attempts to empirically explore the transmission mechanism regarding the short-term impact of public debt and growth. We examine and evaluate the direct effect of higher indebtedness on economic growth for countries in the EU which are in the epicentre of the current sovereign debt crisis. In comparison to similar empirical studies, our research will add to the existing literature by extending the sample of countries and providing the latest empirical evidence for a non-linear and concave (i.e. inverted U-shape) relationship. The empirical analysis primarily includes a panel dataset of 25 sovereign member states of the EU. Our sample of EU countries is divided into subgroups distinguishing between so-called ‘old’ member states, covering the period 1980–2010, and ‘new’ member states, covering the period 1995–2010. In order to account for the impact of the level of the debt-to-GDP ratio on the real growth rate of GDP, we employ a panel estimation on a generalized economic growth model augmented with a debt variable, while also considering some methodological issues like the problems of heterogeneity and endogeneity. The results across all models indicate a statistically significant non-linear impact of public debt ratios on annual GDP per capita growth rates. Further, the calculated debt-to-GDP turning point, where the positive effect of accumulated public debt inverts into a negative effect, is roughly between 80% and 94% for the ‘old’ member states. Yet for the ‘new’ member states the debt-to-GDP turning point is lower, namely between 53% and 54%. Therefore, we may conclude that the threshold value for the ‘new’ member states is lower than for the ‘old’ member states. In general, the research may contribute to a better understanding of the problem of high public debt and its effect on economic activity in the EU

Public Policy Design and Implementation in Slovenia

Public policy design and implementation is a complex process, and so decision makers try to monitor all of the policy lifecycle stages in a particular policy domain. However, the question of coherent integration of various policy activities arises, including agenda-setting, ex-ante evaluation, formulation, decision-making, implementation, ex-post evaluation of individual policies, sector-specific ones, and even horizontal ones. Therefore, it is important to investigate and understand the reasons why an individual country, such as Slovenia, does not exploit all potential aspects of carrying out policy activities in a systematic and coherent manner. This article explores and analyzes Slovenian practice in policy design based on an in-depth empirical study among key public policyholders and decision makers. Furthermore, the authors identify the key success factors that facilitate or inhibit the development and progress of public policies, programs, and projects (PPPP) in Slovenia. The key findings indicate a particular lack of a professional policy unit to monitor the process holistically and the absence of ex-post evaluation. A need for a systemic solution in public policy design is established, which would merge different authorities’ efforts, epistemic communities, and the public in developing a structural multilevel model for good public governance

EMPIRICAL ESTIMATION OF ENERGY PRICE EFFECTS ON THE INFLATION IN SLOVENIA

V današnjem času večina gospodarstev za normalno delovanje potrebuje različne energente, kar postavlja energente v privilegiran poloţaj v celotnem gospodarstvu. Slovenija, kot majhno odprto gospodarstvo, je odvisna od uvoza energentov. Cena energentov je eksogeno določena in vpliva na inflacijsko stopnjo v drţavi. Raziskali smo inflacijski vpliv teh cen v Sloveniji v obdobju od 1995 do 2010. Uporabili smo VAR model in input-output analizo cen. Iz rezultatov empiričnega dela je razvidno, da 10 % povečanje cen energentov prispeva k povišanju inflacijske stopnje za pribliţno 0,9 odstotne točke. Kot smo pričakovali, so rezultati obeh metod pokazali podoben vpliv.Nowadays, the majority of economies require different energy commodities for their regular activities. Therefore, energy commodities have granted a privileged position in the whole economic environment. Slovenia, as a small and open economy, is dependent on the import of the energy. Energy prices are exogenously given, and any changes in energy prices influence the inflation in Slovenia. We examine these effects for the period between 1995 and 2010. Our research contains two empirical models, VAR econometric method and input-output price analysis. It can be concluded that 10 % increase in prices of energy commodities leads to 0,9 percentage points increase of inflation level in Slovenia. As we assumed, the results of both methods have shown a similar influence