Optimal fiscal policies in booms and recessions: a case study for Slovenia

Optimal fiscal policies are determined for Slovenia for the next few years under alternative assumptions about global developments. We construct a baseline scenario, two scenarios with a recession and two with a boom, each with a demand side and a supply side shock. We use the macroeconometric model SLOPOL12 and assume an intertemporal objective function for Slovenian policy makers containing the main targets derived from a survey among policy makers as arguments. Approximately optimal policies are calculated for all scenarios. Fiscal policies are characterized by an unequal design for dealing with the trade-off between output stabilization and budgetary sustainability: instruments with demand side and supply side effects (direct taxes and public investment) are used for output and employment stabilization, while government consumption and other instruments with only demand side effects are assigned to budget consolidation. The results are rather similar in the different scenarios and only mildly counter-cyclical.