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Institute of Public Finance

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The efect of the financial crisis on Croatia's primary budget deficit and public debt

Petar Sopek, student, Faculty of Science, Zagreb, Croatia

The basic aim of this article is to consider the effect of the current financial crisis on the movements and sustainability of the public debt in the period up to 2013. It is shown that changes in the public debt come from the effect of the primary deficit created, stockflow adjustment, the real growth of the GDP and real interest rates. On the basis of results of the European Communities (2009) a statistical estimate is given of the trends in the primary deficit for EU-12, after which the model is adjusted to Croatian figures. The projection of stock-flow adjustment is undertaken from a projection of the primary deficit, due to the relatively strong negative correlation between those two variables in the past, whilst the projection of the real growth rate of the GDP and real interest rates is significantly simplified. The main hypothesis tested is that the ratio of the public debt in the GDP up to 2013 does not exceed the margin of sustainability prescribed in the Maastricht criterion of 60%, which is finally confirmed by this analysis.

Keywords:  Public debt, fiscal sustainability, primary deficit, stock-flow adjustment, the Croatian economy

Year:  2009   |   Volume:  33   |   Issue:  3   |   Pages:  273 - 298

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 September, 2009
III / 2009
EBSCO Publishing
ISSN 1846-887X
e-ISSN 1845-9757
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