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Agustin Velasquez and Svetlana Vtyurina
Hours worked vary widely across countries and over time. In this paper, we investigate the role played by taxation in explaining these differences for EU New Member States. By extending a standard growth model with novel data on consumption and labor taxes, we assess the evolution of trends in hours worked over the 1995-2017 period. We find that the inclusion of tax rates in the model significantly improves the tracking of hours. We also estimate the elasticity of hours (and its different margins) to quantify the deadweight loss introduced by consumption and labor taxes. We find that these taxes explain a large share of labor supply differences across EU New Member States and that the potential gains from policy actions are noteworthy.
International Monetary Fund. European Dept.
This paper discusses the first phase, to be constructed from 2015 to mid-2019, comprises a 41-kilometer section that is to provide an efficient and safe transport link between Podgorica and the poorest northern region in Montenegro. It runs through the mountainous terrain in the center of the country that is economically undeveloped. Due to its large cost (25 percent of 2017 GDP), the first phase of the highway has used up most of Montenegro’s fiscal space and will crowd out other productive spending. For the foreseeable future, the second and third parts of the highway could only be financed with concessional funds, because loans would destabilize the debt sustainability of Montenegro. The government’s main motivation for this large project is the need to improve connectivity, particularly to Europe through Serbia, boost tourism and trade, improve road safety, and strengthen national security. The highway is a part of Montenegro’s plans to integrate the Montenegrin transport network with those of neighboring countries.
International Monetary Fund. European Dept.
This paper mainly examines fiscal decentralization, credit-loss recovery, and unemployment in Croatia. The degree of expenditure and revenue decentralization in Croatia appears limited relative to its peers. At about 16 percent of general government spending, subnational government spending in Croatia is modest compared to other southeastern European countries and to the EU-28 average, and particularly low compared to the most decentralized countries in the EU. Croatia’s recovery since late 2014 has been moderate. Croatia’s recession lasted six years and was thus the longest among the new EU member states. Croatia’s structural and cyclical unemployment rates are very high, at about 11.5 percent and 5 percent respectively in 2015.
Zsoka Koczan
In this paper we analyze how Western Balkans public finances adapted to the boom-bust cycle. Large capital inflows into emerging European economies during the mid-2000s resulted in rapid economic growth and convergence to EU income levels. This also resulted in improved fiscal positions of most countries, on the back of strong revenue performance. Yet, since the onset of the global economic crisis, many countries have struggled to adjust to the new situation of lower external financing and lower growth.
International Monetary Fund. European Dept.
This 2015 Article IV Consultation highlights that after six years of persistent recession, Croatia’s economy is showing first signs of recovery. Robust retail sales and value-added tax receipts suggest that private consumption has bottomed out. Employment has stabilized and corporate profits are recovering. Tailwinds from a favorable external environment have helped, notably lower energy prices, stronger euro area growth, and ample domestic and external liquidity that contain debt servicing costs. For 2015, the economy is projected to grow by 0.5 percent. Net exports are expected to make a modest positive contribution to growth.
International Monetary Fund. European Dept.
This paper discusses Bosnia and Herzegovina’s Sixth and Seventh Reviews Under the Stand-By Arrangement and Requests for Augmentation of Access and Modification of Performance Criteria (PC). Program performance became more uneven in late 2013 and early 2014, reflecting both economic factors and delays in policy implementation. Fiscal policies were broadly on track, but two end-December 2013 fiscal PCs were missed. As revenue collection steadily improved, all end-March 2014 PCs were met. Given the authorities’ overall performance and corrective actions, the IMF staff recommends the completion of the sixth and seventh reviews.