83rd International Atlantic Economic Conference

March 22 - 25, 2017 | Berlin, Germany

Role of austerity policies in reviving economic growth and establishing fiscal balance in Slovenia

Friday, 24 March 2017: 10:00
Maks Tajnikar, Ph.D , Department of Economic Theory and Policy, University of Ljubljana, 1000 Ljubljana, Slovenia
Petra Dosenovic Bonca, Ph.D. , Economics, University of Ljubljana, Ljubljana, Slovenia
The authors analyse both the effectiveness and role of economic policies implemented in Slovenia following the 2009 economic crisis. After the decline of economic activity that resulted from the inappropriate economic policy applied in 2012, gross domestic product (GDP) growth picked up in 2014 (3.1%) and 2015 (2.3%). Positive economic growth will also mark the year 2016. The current account surplus rose substantially and gross external debt declined to €44.7 billion in 2015.  The general budget deficit also declined and has stabilised (€1.2 billion in 2016).      

Following the onset of economic crisis in 2009, the Slovenian government started officially adopting austerity policies, mostly in 2012. In this paper, the authors discuss the role and impact of austerity policies on positive macroeconomic developments during the last three years and address the question of whether austerity policies were indeed systematically enacted. They identify those policy measures that have been the key drivers of achieved positive macroeconomic results. The discussion presented in this paper builds on the arguments and conclusions we presented in 2014 (Effectiveness of austerity measures and the role of Keynesian demand management: Slovenia. Seventy-Seventh International Atlantic Economic Conference. Madrid: International Atlantic Economic Society, 2014).

The authors investigate the impact of austerity policies by empirically analysing the crowding out effect, the Ricardian equivalence principle and the domestic competitiveness effect on economic growth. They look into determinants of economic growth and the impact of fiscal policies on the relationship between the costs of increasing state debt and economic growth. The authors show that Slovenia has executed austerity measures only over short time periods and argue that negative impacts on economic growth and budget deficits were achieved by exercising austerity. The authors show that the revival of economic growth was autonomous and thus independent of enacted economic policies. Such economic growth has also benefited the general budget balance and fiscal position of Slovenia.