engleski

The effect of fiscal deficit on interest rate in Republic of Croatia

A large number of governments experience fiscal deficits for different reasons. The growing discrepancy between government revenues and expenditures accents the deficits of the whole public sector even more, influencing therefore the growing trend of internal and external indebtness. A fiscal deficit may have different economic consequences evidenced in rising interest rates, reduced investment, national currency appreciation, private investment crowding out, national and private savings cut, export crowding out and similar. Although theory offered an extensive number of arguments for these and opposite points of view, research in this field didn't show any empirical results for neither perspective. Estimating a VAR model the authors will test the effect of consolidated general government budget deficit on the interest rate in Croatia. The Granger casuality will show the direction and amplitude of such effect, while the impulse response analysis will show the influence of the budget deficit increment on the interest rate.

fiscal deficit; interest rate; crowding out effect; Croatia; VAR model

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