Composition matters: fiscal consolidation and economic growth in the Czech Republic (2010-2013)

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Authors and Corporations:

Burgert, Matthias (Author), Hruzova, Renata (Author), Lisicky, Milan (Author), Monks, Allen (Author), Europäische Kommission Generaldirektion Wirtschaft und Finanzen (Issuing body)

Other Authors:

Hruzova, Renata [Author] • Lisicky, Milan [Author] • Monks, Allen [Author]

Type of Resource:

E-Book

Language:

English

published:

Luxembourg Publications Office of the European Union 2016

Series:

European economy ; 012 (July 2016)

Subjects:

fiscal policy

budget deficit

public finance

economic growth

economic analysis

economic consequence

Czechia

Slovakia

Poland

Graue Literatur

Source:

Verbunddaten SWB
Lizenzfreie Online-Ressourcen

ISBN:

9789279544774

License:

Reproduction is authorised provided the source is acknowledged

Description
Summary:	Between 2010 and 2013, the Czech Republic undertook a significant fiscal consolidation that cut the headline government deficit by about 4.5 pps., bringing it well below the reference value in the Treaty. This consolidation was largely achieved by discretionary fiscal measures in two areas: public investment and indirect taxes. We examine whether the composition of this consolidation could have contributed to the weakness of economic growth in the Czech Republic during this period. We compare the consolidation package of the Czech Republic with two counterfactual packages based on the fiscal consolidations undertaken by Slovakia and Poland during the same period. We estimate the size and composition of the three packages and scale them to match that of the Czech package. This allows us to assess the impact on growth that consolidation on this scale would have had under a different mix of fiscal measures. We simulate the impact of the three estimated packages on the Czech economy in the short- to medium-term using the European Commission's QUEST model, a macroeconomic model used for policy analysis. The results of this analysis suggest that the composition of the Czech consolidation package had a larger negative impact on economic activity than the counterfactual packages. This is due to the large and persistent negative impact that reductions in public investment have on GDP in our model. While discretionary measures in other areas also have a negative impact on GDP in the short term in our model, the impact generally dissipates in the years following the consolidation. Having achieved a balanced budget (in structural terms) by the end of the consolidation period, the Czech Republic had scope to increase public investment and, indeed, such an increase occurred in 2014 and 2015. Nevertheless, these results suggest that the composition of fiscal adjustment matters for the short-term impact of consolidation on economic growth.
Physical Description:	1 Online-Ressource (circa 14 Seiten); Illustrationen
ISBN:	9789279544774
DOI:	10.2765/26445
Access:	Open Access