Demand-side or supply-side stabilisation policies in a small euro area economy : a case study for Slovenia

Neck, Reinhard (author), Weyerstrass, Klaus (author), Blueschke, Dmitri (author), Verbič, Miroslav (author)

In this paper we analyse the effectiveness of demand- and supply-side fiscal policies in the small open economy of Slovenia. Simulating the SLOPOL10 model, an econometric model of the Slovenian economy, we analyse the effectiveness of various categories of public spending and taxes during the period 2020 to 2030, assuming that no crisis occurs. Our simulations show that those public spending measures that entail both demand- and supply-side effects are more effective at stimulating real GDP and increasing employment than pure demand-side measures. This is due to the fact that supply-side measures also increase potential and not only actual GDP. Measures which foster research and development and those which improve the education level of the labour force are particularly effective in this respect. Employment can also be stimulated effectively by cutting the income tax rate and the social security contribution rate, i.e. by reducing the tax wedge on labour income, which positively affects Slovenia's international competitiveness. Successful stabilisation policies should thus contain a supply-side component in addition to a demand-side component. We also provide a first simulation of potential effects of the Covid-19 crisis on the Slovenian economy, which is modelled as a combined demand and supply shock.

• Language: English
• Keywords: macroeconomics, fiscal policy, tax policy, public expenditure, public debt, Slovenia, stabilisation policy, demand management, supply-side policies
• Work type: Article
• Typology: 1.01 - Original Scientific Article
• Organization: EF - School of Economics and Business
• Publication status: Published
• Publication version: Version of Record
• Year: 2021
• Number of pages: 18 str.
• PID: 20.500.12556/RUL-125717
• UDC: 338
• ISSN on article: 0340-8744
• DOI: 10.1007/s10663-021-09503-y
• COBISS.SI-ID: 56761603
• Publication date in RUL: 06.04.2021

Record is a part of a journal

• Title: Empirica
• Shortened title: Empirica
• Publisher: Springer
• ISSN: 0340-8744
• COBISS.SI-ID: 29214465

Licences

• License: CC BY 4.0, Creative Commons Attribution 4.0 International
• Link: http://creativecommons.org/licenses/by/4.0/
• Description: This is the standard Creative Commons license that gives others maximum freedom to do what they want with the work as long as they credit the author.
• Licensing start date: 06.04.2021

Secondary language

• Language: Slovenian
• Keywords: makroekonomija, fiskalna politika, davčna politika, javni izdatki, javni dolg, management, Slovenija

Projects

• Funder: FWF - Austrian Science Fund
• Project number: I 2764-G27

• Funder: ARRS - Slovenian Research Agency
• Project number: 630-31/2016-1