POSSIBILITIES AND LIMITATIONS OF FISCAL POLICY IN CROATIA

This paper analyzes the possibilities and limitations of fiscal policy in Croatia. Firstly, we analyze important limitations of fiscal policy such as lack of coordination of fiscal and monetary policy, inadequate budget planning, increasing tax pressure, the size and structure of public expenditures and de fi cit fi nancing problems. In the central part of the analysis we empirically estimate the possibilities of stabilizing role of fiscal policy by analyzing the impact of general government revenues and expenditures on GDP growth. For this purpose we develop a structural VAR model to evaluate the impact of various components of public expenditures and revenues on economic growth in Croatia. Further, fi scal policy possibilities are synthesized through the proposed measures of socalled “smart fi scal consolidation” which is the foundation for achieving the stabilizing role of fiscal policy.