This Selected Issues paper argues that revenue-neutral tax rebalancing would help Slovenia address long-term fiscal and growth challenges. The present tax-benefit system is supportive of distributional fairness in Slovenia; however, it is argued that tax reform can help bring stronger employment and productivity growth and enhanced resilience to the challenges of population ageing. The paper lays out the case for tax reform in view of long-run fiscal and growth challenges and it also reviews the current tax system and its weaknesses in comparison with international best practices. The paper also sets out tax reform options and uses a model simulation to illustrate the medium- to long-term fiscal and growth impact. The analysis on the tax rebalancing impact suggests that it can permanently and significantly increase potential output in Slovenia. The simulations indicate that a revenue-neutral tax rebalancing has positive fiscal and growth benefits over time.
This Article IV Consultation highlights that the continued structural reforms are key to ensure long-term prosperity, while strengthening the economy’s resilience to shocks. Effective implementation of the recently enacted reforms of vocational training, apprenticeship, and adult education would help address skill shortages, support employment of younger and older people, and boost productivity growth. Macro-financial legacy issues remain in bank and corporate balance sheets, including small and medium enterprises’ nonperforming loans. Structural challenges persist with low productivity growth, skills shortages, high tax wedge, heavy regulatory system, and extensive presence of state-owned enterprises. Policies should focus on fiscal and structural reforms to rebuild fiscal buffers and increase productivity. Slovenia’s external position in 2018 is assessed as substantially stronger than suggested by fundamentals and desirable policies; however the current account is expected to revert toward its norm in the medium term. Continued structural reforms are key to ensure long-term prosperity, while strengthening the economy’s resilience to shocks. Effective implementation of the recently enacted reforms of vocational training, apprenticeship, and adult education would help address skill shortages, support employment of younger and older people, and boost productivity growth.
Superficial examination of aggregate gross cross-border capital inflow data suggests that there
was no substitution between portfolio inflows and bank loans in recent years. However, our
novel analysis of disaggregate inflows (both by types of instrument and borrower) shows
interesting heterogeneity. There has been substitution of bank loans for portfolio debt securities
not only in the case of corporate and sovereign borrowers in advanced countries, but also
sovereign borrowers in emerging countries. In the case of corporate borrowers in emerging
markets, the relationship corresponds to complementarity across types of gross capital inflows,
especially during periods of positive capital gross inflows after the global financial crisis. A
large part of these patterns does not seem to be driven by a common phenomenon across
countries associated with the global financial cycle, but rather by country-specific factors.
State-owned enterprises (SOEs) play an important role in Emerging Europe’s economies,
notably in the energy and transport sectors. Based on a new firm-level dataset, this paper
reviews the SOE landscape, assesses SOE performance across countries and vis-à-vis
private firms, and evaluates recent SOE governance reform experience in 11 Emerging
European countries, as well as Sweden as a benchmark. Profitability and efficiency of
resource allocation of SOEs lag those of private firms in most sectors, with substantial
cross-country variation. Poor SOE performance raises three main risks: large and risky
contingent liabilities could stretch public finances; sizeable state ownership of banks
coupled with poor governance could threaten financial stability; and negative productivity
spillovers could affect the economy at large. SOE governance frameworks are partly weak
and should be strengthened along three lines: fleshing out a consistent ownership policy;
giving teeth to financial oversight; and making SOE boards more professional.