Fiscal policy and competitiveness in croatia

Abstract

The chapter deals with key underlying factors that shape impact of fiscal policy on Croatian competitiveness. These are historical and political factors, impact of international institutions, structural problems of Croatian economy and different policy actors within the country. The paper limits its focus to overall effects of government spending, tax policy and structure and interaction of fiscal and monetary policy. The main argument is that fiscal policy was not conducive to improvement on the level of competitiveness mostly due to inability of main political forces to devise a consistent, sustainable and feasible long-term plan of economic development. Fiscal policy adapts to dynamics of economic system and basis on ad hoc decision-making. Continuations of such a policy will inevitably lead to social clashes and tensions. The paper suggests another path, which is much more endogenous but demands high level of social capital in the country.