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Characteristics of fiscal policy in Croatia: does it depend on the phase of the business cycle?*
Vladimir Arčabić** 
Article | Year: 2021 | Pages: 433 - 457 | Volume: 45 | Issue: 4 Received: July 1, 2021 | Accepted: September 20, 2021 | Published online: December 6, 2021
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FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
Note: Shaded areas represent the recession periods in Croatia.
Note: Shaded areas represent the recession periods in Croatia. Vertical red lines indicate the beginning and the end of the excessive deficit procedure in Croatia (2014:1-2017:2). The rolling window size is 20 quarters (five years). Regression is estimated with HAC standard errors based on the Newey-West window and four lags.
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LM-HAM
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LM-HP
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LM-SVAR
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TR-HAM
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TR-HP
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TR-SVAR
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MS-HAM
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MS-HP
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MS-SVAR
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Threshold
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-3,352
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-0.655
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0.413
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Constant
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-1.055**
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-0.761**
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-1.184*
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(0.024)
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(0.044)
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(0.059)
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Lagged
CAPB/GDP
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0.798***
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0.918***
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0.863***
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(0.000)
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(0.000)
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(0.000)
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Lagged
debt/GDP
|
0.013**
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0.013**
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0.018*
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(0.044)
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(0.022)
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(0.065)
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Lagged
output gap
|
0.061**
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0.101***
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0.009
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(0.020)
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(0.008)
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(0.649)
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Constant
- UP
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-1.049**
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-2.119***
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-3.472***
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-1.239***
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-0.828**
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-1.066
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(0.035)
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(0.000)
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(0.000)
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(0.000)
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(0.015)
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(0.150)
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Constant
– DOWN
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-0.642
|
-0.321
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-2.066*
|
-0.370
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-0.214***
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-1.222***
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(0.602)
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(0.486)
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(0.079)
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(0.733)
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(0.000)
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(0.000)
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Lagged
CAPB/GDP-UP
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0.761***
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0.766***
|
0.439***
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0.642***
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0.928***
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0.856***
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(0.000)
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(0.000)
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(0.000)
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(0.000)
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(0.000)
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(0.000)
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Lagged
CAPB/GDP-DOWN
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-0.797
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1.005***
|
0.872
|
1.06***
|
0.929***
|
1.039***
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(0.151)
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(0.000)
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(0.000)
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(0.000)
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(0.000)
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(0.000)
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Lagged
debt/GDP-UP
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0.014**
|
0.034***
|
0.036***
|
0.017***
|
0.013**
|
0.016
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(0.045)
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(0.000)
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(0.004)
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(0.005)
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(0.014)
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(0.149)
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Lagged
debt/GDP-DOWN
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-0.131***
|
0.008
|
0.032*
|
0.004
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0.018***
|
0.024***
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(0.006)
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(0.202)
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(0.075)
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(0.822)
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(0.000)
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(0.000)
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Lagged output
gap-UP
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0.06***
|
0.114***
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0.177***
|
0.070***
|
0.097**
|
0.002
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(0.005)
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(0.003)
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(0.000)
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(0.002)
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(0.035)
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(0.945)
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Lagged
output gap-DOWN
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-0.674***
|
0.158***
|
0.027
|
0.017
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0.198***
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0.071***
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(0.007)
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(0.007)
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(0.493)
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(0.822)
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(0.000)
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(0.000)
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1st-regime
volatility
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-0.949***
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-0.476***
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-0.549***
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(0.000)
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(0.000)
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(0.000)
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2nd-regime
volatility
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0.064
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-6.008***
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-3.786***
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(0.699)
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(0.000)
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(0.000)
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Log-likelihood/R-squared
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0.779
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0.914
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0.941
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-77,405
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-63,870
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-41.652
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-75.288
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-59,593
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43.460
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Wald
Test - lagged output gap
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9.096***
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0.444
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6.471**
|
0.496
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4.764**
|
6.833**
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(Chi-Square(1),
p-value)
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(0.003)
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(0.508)
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(0.013)
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(0.484)
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(0.039)
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(0.012)
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Wald
Test - lagged debt/GDP
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9.617***
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9.973***
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0.044
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0.516
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1.208
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0.464
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(Chi-Square(1),
p-value)
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(0.002)
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(0.002)
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(0.835)
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(0.473)
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(0.272)
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(0.499)
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Serial
Correlation LM Test
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27.083***
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21.267**
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29.412***
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23.728**
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17,714
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32.279***
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24.507**
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18.895*
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23.677**
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(Chi-Square(1),
p-value)
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(0.008)
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(0.047)
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(0.003)
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(0.022)
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(0.125)
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(0.001)
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(0.017)
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(0.091)
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(0.023)
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White
Heteroscedasticity Test
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10,371
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12,899
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5,702
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15,008
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27.61*
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15.272
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(0.321)
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(0.167)
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(0.769)
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(0.524)
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(0.091)
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(0.705)
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Note: Horizontal red line represents the estimated threshold value. Shaded areas represent the recession periods in Croatia.
|
|
LM-HAM
|
LM-HP
|
LM-SVAR
|
TR-HAM
|
TR-HP
|
TR-SVAR
|
MS-HAM
|
MS-HP
|
MS-SVAR
|
|
Threshold
|
|
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|
-3.592
|
-0.254
|
2,055
|
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Constant
|
-0.901**
|
-1.208***
|
-5.571***
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(0.032)
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(0.000)
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(0.000)
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Lagged
CAPB/GDP
|
0.839***
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0.901***
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0.393***
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(0.000)
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(0.000)
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(0.004)
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Lagged
debt/GDP
|
0.011*
|
0.018***
|
0.083***
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(0.061)
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(0.005)
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(0.000)
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Lagged
output gap
|
0.053**
|
0.115***
|
0.091
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(0.045)
|
(0.004)
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(0.101)
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EPU
index
|
0.001
|
0.002*
|
0.002
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(0.406)
|
(0.064)
|
(0.726)
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Constant
- UP
|
|
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|
-1.241**
|
-2.802***
|
-3.223***
|
-1.666***
|
-1.291***
|
-2.196***
|
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(0.015)
|
(0.000)
|
(0.000)
|
(0.000)
|
(0.000)
|
(0.000)
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Constant
- DOWN
|
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-7.197***
|
0.510
|
-1.327
|
-0.233
|
-0.548***
|
-1.318
|
|
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|
(0.000)
|
(0.265)
|
(0.181)
|
(0.754)
|
(0.000)
|
(0.438)
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Lagged
CAPB/GDP-UP
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|
0.785***
|
0.766***
|
0.545***
|
0.628***
|
0.896***
|
0.517***
|
|
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|
(0.000)
|
(0.000)
|
(0.000)
|
(0.000)
|
(0.000)
|
(0.000)
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|
Lagged
CAPB/GDP-DOWN
|
|
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|
-0.102
|
1.084***
|
0.878***
|
1.174***
|
0.981***
|
0.737***
|
|
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|
(0.565)
|
(0.000)
|
(0.000)
|
(0.000)
|
(0.000)
|
(0.000)
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|
Lagged
debt/GDP-UP
|
|
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|
0.016**
|
0.042***
|
0.026*
|
0.017***
|
0.018***
|
0.028***
|
|
|
|
|
(0.021)
|
(0.000)
|
(0.066)
|
(0.002)
|
(0.006)
|
(0.007)
|
|
Lagged
debt/GDP-DOWN
|
|
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|
0.062***
|
0.000
|
0.022
|
0.001
|
0.021***
|
0.027
|
|
|
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|
(0.000)
|
(0.958)
|
(0.152)
|
(0.912)
|
(0.000)
|
(0.254)
|
|
Lagged
output gap-UP
|
|
|
|
0.061**
|
0.164***
|
0.224***
|
0.059***
|
0.096*
|
0.159***
|
|
|
|
|
(0.012)
|
(0.000)
|
(0.000)
|
(0.003)
|
(0.065)
|
(0.000)
|
|
Lagged
output gap-DOWN
|
|
|
|
-0.319***
|
0.237***
|
0.031
|
0.020
|
0.201***
|
0.081**
|
|
|
|
|
(0.000)
|
(0.000)
|
(0.416)
|
(0.834)
|
(0.000)
|
(0.018)
|
|
EPU index-UP
|
|
|
|
0.003
|
0.003***
|
0.0001
|
-0.001
|
0.001
|
0.001
|
|
|
|
|
(0.120)
|
(0.002)
|
(0.352)
|
(0.1951)
|
(0.516)
|
(0.857)
|
|
EPU index-DOWN
|
|
|
|
-0.029***
|
-0.000
|
0.000
|
0.005*
|
0.002
|
0.001
|
|
|
|
|
(0.000)
|
(0.988)
|
(0.971)
|
(0.057)
|
(0.000)
|
(0.726)
|
|
1st-regime
volatility
|
|
|
|
|
|
|
-0.990***
|
-0.529***
|
-0.750***
|
|
|
|
|
|
|
|
(0.000)
|
(0.000)
|
(0.000)
|
|
2nd-regime
volatility
|
|
|
|
|
|
|
-0.061
|
-4.528***
|
-0.993***
|
|
|
|
|
|
|
|
(0.7655)
|
(0.000)
|
(0.000)
|
|
Log-likelihood/R-squared
|
0.798
|
0.931
|
0.646
|
-65,321
|
-51.838
|
-41.869
|
-68.748
|
-50,577
|
-37.686
|
|
Wald
Test - lagged output gap
|
|
|
|
37.966***
|
1,043
|
8.616***
|
0.140
|
3.957**
|
2.065
|
|
(Chi-Square(1),
p-value)
|
|
|
|
(0.000)
|
(0.307)
|
(0.003)
|
(0.708)
|
(0.047)
|
(0.157)
|
|
Wald
Test - lagged debt/GDP
|
|
|
|
0.003
|
24.217***
|
0.033
|
1.309
|
0.082
|
0.001
|
|
(Chi-Square(1),
p-value)
|
|
|
|
(0.857)
|
(0.000)
|
(0.856)
|
(0.253)
|
(0.775)
|
(0.981)
|
|
Serial
Correlation LM Test
|
23.894**
|
19.969*
|
12,158
|
25.041**
|
31.499***
|
31.155***
|
25.063*
|
10,634
|
27.900
|
|
(Chi-Square(1),
p-value)
|
(0.021)
|
(0.068)
|
(0.433)
|
(0.015)
|
(0.002)
|
(0.002)
|
(0.015)
|
(0.561)
|
(0.006)
|
|
White
Heteroscedasticity Test
|
17,125
|
13,619
|
24.456
|
27,948
|
35.773
|
30.542
|
|
|
|
|
(0.250)
|
(0.478)
|
(0.143)
|
(0.361)
|
(0.180)
|
(0.387)
|
|
|
|
Figure 1Three output gaps and three cyclically adjusted primary balances in percent of GDP DISPLAY Figure
Figure 2Public debt sustainability and cyclicality, rolling window regression results DISPLAY Figure
Table 1Results on fiscal policy sustainability and cyclicality DISPLAY Table
Figure 3Output gaps and estimated thresholds DISPLAY Figure
Table 2Robustness check of fiscal policy cyclicality and sustainability with the included economic policy uncertainty DISPLAY Table
* The views expressed in this paper are not necessarily the views of the Croatian National Bank. ** The authors would like to thank two anonymous referees for their useful comments and suggestions.
1 Reinhart and Rogoff (  2010) also argue that public debt higher than 90% of GDP can have a negative effect on economic growth. However, this argument became controversial and was often rejected by subsequent research, see Arčabić et al. ( 2018).
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December, 2021
IV/2021 |
