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The impact of Maastricht Treaty fiscal criteria on crowding out effect in Croatia

Besides ensuring sound public finance, fiscal policy in Croatia needs also to follow one more objective: tax harmonization which is rimmed by limitations from Maastricht Treaty criteria. For a developing country like Croatia, fiscal policy has to be an important tool of stabilization and development tendencies. Rising public debt and budget deficit can adversely affect both public and private investment potential, which can dampen economic growth prospects. Hence, this can induce the crowding out effect. For Croatia, this actually means that inflicted Maastricht restrictions could de facto ensure a fall in fiscal deficit and public debt i.e. sustainability of economic growth and macroeconomic stability. The aim of this paper is to evaluate the consequences of Maastricht Treaty restrictions on the Croatian economy, regarding possible crowding out relations. Estimation was based on Granger causality tests whereas a VAR model was obtained in order to present the dynamics of changes.

Maastricht Treaty, crowding out effect, VAR model, Granger causality, Croatia

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