FISKALNI PARADOKS U SRBIJI: PRIVID ILI REALNOST
FISCAL PARADOX IN SERBIA: ILLUSION OR REALITY

Author(s): Miroljub Labus
Subject(s): National Economy, Economic policy, Policy, planning, forecast and speculation, Fiscal Politics / Budgeting
Published by: Finrar d.o.o Banja Luka
Keywords: Fiscal policy; DSGE; IRFs and their decomposition; conditional forecasts; Serbia;
Summary/Abstract: In this paper, we analysed the impact of tax instruments on GDP growth (tax on wages and profits, VAT, excise taxes and social contributions), as well as the corresponding impact of government spending on growth (public spending and public investments). We have observed a paradox. Empirically observed, the increase in the tax burden stimulates the growth of GDP, while the increase in government spending reduces this growth. To understand this paradox, we applied a stochastic model of the general economic equilibrium (DSGE model QUEST_Serbia) and carried out corresponding fiscal policy simulations. They are based on impulse functions, their decomposition and conditional forecasts of economic growth. Our finding is that the increase in any type of taxes, direct or indirect, reduces GDP growth rates although empirical data suggests otherwise. On the other hand, the increase in government spending on consumption and investments has a cyclical effect on economic growth, without modifying the final accumulated effects. This means that higher government spending cannot affect long-term development, but it can help fight recession in the short run.

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