Would economic recovery imply fiscal stabilization in Serbia?

Fiscal reaction to interest payments: The case of Serbia

“…In particular, Arsić et al (2013) document how 80% of variations in overall primary fiscal balance is due to discretionary fiscal policy changes. In other words, the changes in structural, cyclically adjusted, primary fiscal balance govern approximately 80% of variations in overall, cyclically unadjusted, primary fiscal balance.…”

“…Large privatizations of state owned banks and enterprises, along with the absorption boom led surge in indirect revenues, motivated the government to accompany cuts in marginal tax rate on wages with increases in public wages and non-taxable wage threshold. Arsić et al (2013) argue how these measures increased structural fiscal deficit in Serbia by approximately 1.7% of GDP. In addition, policy makers approved several unprecedented hikes in public wages and pensions of around 2.5% of GDP during 2008 (Arsić et al, 2013).…”

“…Arsić et al (2013) argue how these measures increased structural fiscal deficit in Serbia by approximately 1.7% of GDP. In addition, policy makers approved several unprecedented hikes in public wages and pensions of around 2.5% of GDP during 2008 (Arsić et al, 2013).…”

“…Moreover, the government signed a trade agreement with the EU which resulted in the overall loss of custom revenues of around 1.5% of GDP (Arsić et al, 2013). Between 2009Q1 and 2011Q1, the government froze public wages and pensions, and introduced several other austerity measures on both sides of the budget.…”

“…In particular, actual fiscal deficit in Serbia averaged around 4.5% of GDP between 2009 and 2010, while EU-10 economies recorded an average fiscal deficit of around 6% of GDP in the same period. The effects of these measures were, however, largely reversed during 2011 when the government had abandoned fiscal austerity measures and introduced a fiscal decentralization package which widened structural fiscal deficit in Serbia for approximately 1.7% of GDP (Arsić et al, 2013). Therefore, between 2011Q2 and 2014Q4, the fiscal deficit in Serbia averaged around 5.9% of GDP, while EU-10 economies recorded an average fiscal deficit of around 3.4% of GDP, as a direct consequence of introduced fiscal austerity measures.…”