Abstract
ABSTRACTIn 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.
Highlights
The financial and economic crisis of 2007–2009, commonly dubbed the Great Recession, hit Slovenia hard, with real GDP dropping by almost 8% in 2009
To analyse the effects of different fiscal policy scenarios in Slovenia over the 15 years and evaluate them, we use the SLOPOL model, an econometric model of the Slovenian economy constructed by the authors of this article to make forecasts and simulate the effects of the global and European crises under alternative assumptions
Starting from the present favourable prospects of the European economies, the forecast is very optimistic but it can be improved by optimal fiscal policies as calculated using the OPTCON2 algorithm
Summary
The financial and economic crisis of 2007–2009, commonly dubbed the Great Recession, hit Slovenia hard, with real GDP dropping by almost 8% in 2009. Before the Great Recession, Slovenia had experienced high GDP growth and falling unemployment. We analyse the effects of different fiscal policy scenarios in Slovenia over the 15 years and evaluate them according to their effects on macroeconomic target variables. To analyse the effects of different fiscal policy scenarios in Slovenia over the 15 years and evaluate them, we use the SLOPOL model, an econometric model of the Slovenian economy constructed by the authors of this article to make forecasts and simulate the effects of the global and European crises under alternative assumptions. We determine optimal fiscal policies for Slovenia, using the SLOPOL model and assuming an intertemporal objective function for Slovenian policy makers containing output, unemployment, inflation, the budget deficit, public debt and the current account as arguments.
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