Fiscal consolidation as proposed is a workable policy, which will keep the rising debt-to-GDP ratio at sustainable level, but it is still not sufficient to reverse debt trend in 2017. Perhaps the other structural measures will do this job, but they are beyond the scope of this paper.

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SažetakProgram fiskalnog prilagođavanja uspešno je sproveden u 2015. Na osnovu postignutih rezultata sada je trenutak da se razmišlja o sledećoj fazi programa koja bi se odnosila na optimizaciju fiskalne politike. Pod pojmom "optimalne fiskalne politike" podrazumevamo takvo dizajniranje fiskalnih instrumenata koje bi omogućilo postizanje maksimalne stope rasta BDP. MMF je predložio okvire jedne takve politike u svojoj poslednjoj studiji o zemljama Centralne, Istočne i Jugoistočne Evrope.Mi ćemo u ovom radu testirati navedene preporuke, ali u izmenjenom analitičkom okviru koji nam daje QUEST_Serbia Dynamic Stochastic General Equilibrium (DSGE) model. Model je tako modifikovan da su sve fiskalne varijable tretirane kao endogene veličine podložne stohastičkim šokovima i oceni parametara na osnovu Bajesove procedure za period Y2003Q1 do Y2015Q4. Dodatno, primenili smo novi analitički alat dekompozicije impulsnih funkcija koji nam omogućava da kompleksne dinamičke nelinearne odnose svedemo na jednostavniju formu linearnih veza između stejt varijabli i ostalih endogenih varijabli.Naši rezultati podržavaju opšti stav MMF na primeru srpske ekonomije da smanjenje fiskalnog opterećenja na rad i kapital ima pozitivno dejstvo na rast, a da smanjenje fiskalnih transfera i državne potrošnje ima negativan, ali privremeni efekat na rast. Na drugoj strani, naši rezultati ne podržavaju podizanje stope PDV jer to negativno utiče na rast, a podržavaju povećanje javnih investicija samo pod određenim uslovima. Ključne reči: fiskalno prilagođavanje, DSGE modeli, optimalno oporezivanje, dekompozicija funkcije impulsnih odziva JEL CLASSIFICATION: C680, E620 AbstractThe fiscal consolidation program in 2015 was a success. Despite this success, it is time to consider a switch away from the fiscal consolidation policy towards a fiscal optimization policy. By "fiscal optimization policy" we mean a proper design of fiscal instruments that might lead towards the maximum potential rate of GDP growth. Relying on a panel regression model for 76 countries, the IMF recommended some guidelines for such an optimal fiscal policy in its latest regional report on Central, Eastern, and Southeastern European (CESEE) countries.In this paper we test the IMF's recommendations in a different analytical framework based on the QUEST_Serbia Dynamic Stochastic General Equilibrium (DSGE) model. We endogenize all fiscal revenue instruments, update macroeconomic data, and estimate the model's coefficients using Bayesian technique. We also develop a new analytical tool for the decomposition of Impulse Response Functions (IRF), which helps us to reduce complex dynamic non-linear general equilibrium relations to simpler linearized relations between endogenous variables and key state variables.Our findings support a general IMF suggestion in the particular case of the Serbian economy for reducing fiscal duties on labor and capital inputs, as well as public consumption and transfer payments. We, however, do not support increasing VAT rates or expanding public investments...

This paper evaluates the economic performance of the three distinct policy regimes that have been adopted in Serbia since the onset of transition in 2000. The conflict period from 1991 to 1999 determined the starting point of transition and its subsequent realisation. This pre-transition shock was more severe than the shock imposed by the Great Recession in 2008. Besides these shocks, the legacy of conflict, and unresolved privatisation issues, macroeconomic policies also substantially influenced the performance of the Serbian economy. Three distinct policies were implemented between 2000 and 2018 with clearly different approaches: neoliberal, populist, and interventionist. This paper evaluates these policies using quarterly data on 20 macroeconomic indicators classified in 5 groups: macroeconomic stability and domestic, foreign, financial, and labour markets. Regarding the achievements of the three macroeconomic policies, the neoliberal policy is usually blamed for all the deficiencies in the economy in the period between 2000Q1 and 2006Q2. To the contrary, our data indicates that this policy performed the best. The populist policy in the next period from 2006Q3 to 2012Q2 performed the worst. Finally, the interventionist policy, starting in 2012Q3 and evaluated up to 2018Q4, has been inferior to the neoliberal policy but superior to the populist policy. The analysis suggests that apart from macroeconomic policies the starting point of transition matters for a successful economic transition.

In the first, empirical part of the paper, we have dealt with the previous recession episodes in Serbia in the 15-year interval from 2006 to 2020 and the direct impact of the Covid-19 crisis. We have compared the long-term and short-term trends and one-off Covid-19 impacts on the real and monetary economy, financial sector, and the rest of the world. Key lessons drawn from the previous crises are highly relevant today. The second part of the paper is analytical. For that purpose, we have updated our DSGE model with the data until the last quarter of 2020 and simulated nine alternative scenarios of fiscal, monetary, and industrial policies over the next five years. They showed remarkable results in some sectors, but created imbalances in others. Focusing on GDP growth in the post-Covid-19 period is misleading since the economy will never be the same. There is a need to choose an optimal mix of conventional policy measures and an industrial policy based on digitalisation and IT. The current Government policy of a huge fiscal deficit and rising public debt exposes the country to unbearable risk in the future.