Macroeconomic Stability, Fiscal Policy and Taxation : National Development Strategy Croatia 2030 Policy Note
Croatia has made significant economic progress since independence, but the global financial crisis has exposed weaknesses in its economy and growth model. While growth has resumed in 2015, income convergence has been thrown back by the crisis and b...
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| Format: | Policy Note |
| Language: | English |
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/undefined/431721635958873763/Macroeconomic-Stability-Fiscal-Policy-and-Taxation http://hdl.handle.net/10986/36560 |
| Summary: | Croatia has made significant economic
progress since independence, but the global financial crisis
has exposed weaknesses in its economy and growth model.
While growth has resumed in 2015, income convergence has
been thrown back by the crisis and by the prolonged
recession that followed and is currently proceeding only
slowly. Low growth potential, deriving from low productivity
growth, an ageing society, emigration, and a pace of capital
accumulation lower than before the crisis, needs to be
boosted for sustainable and reasonably rapid income
convergence with the EU28. To this end, the export sector
merits particular attention. Integration in global value
chains and exposure to international competition would help
to strengthen firm-level productivity, investment, and
wages. Croatia has the smallest goods export sector among
its peers in Central and Eastern Europe (CEE), and while
exports of services are strong thanks to a vibrant tourism
industry, the potential for productivity improvements there
is limited. Fiscal policy will need to remain tight, as high
public debt, to a significant extent denominated in foreign
currency, needs to be reduced and fiscal space rebuilt.
However, there is scope for using expenditure policies, for
instance better targeting of social assistance, to increase
incentives for labor force participation, which would help
counter adverse demographic trends, reduce the need for
fiscal transfers and increase the scope for raising public
investment, and reduce inequality and poverty. Lastly, the
effectiveness and efficiency of public sector service
delivery across almost the entire public sector will need to
be raised. This will also serve to make Croatia a more
attractive destination for investments, which in turn would
help boost output, reduce unemployment, and provide more revenue. |
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