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Fiscal Sustainability of Macedonia on its path towards the EU

Trenovski, Borce and Tashevska, Biljana (2016): Fiscal Sustainability of Macedonia on its path towards the EU. Forthcoming in: research monograph “The Republic Of Macedonia On Its Path Towards The European Union (2020) – Experiences, Challenges and Perspectives” Macedonian Academy of Science and Arts (MASA) (2016)

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The 2008 global economic crisis exposed the importance of state fiscal intervention, and more than two decades of neoclassic paradigm and a non-fiscal domination paradigm, it brought back fiscal activism and the Keynesian ideas and measures at the top of government agendas. However, drastic worsening of many developed nations’ fiscal state, as a result of a decreased economic activityand of various fiscal packages aimed at the financial sector and the economy as a whole, complemented by budgetary pressures from an aging population, activated debates on the size, sustainability and the consequences of budget deficits and public dept. Recent events, particularly the conditions created by the European debt crisis under which, some EU member states faced difficulties in access to markets, confirmed that the challenges of fiscal sustainability are not only long-term, and are not typical only of developing countries, but are a real problem for developed countries with a growing public debt, stagnant economic growth, unfavorable demographic trends and obligations passed on by the financial sector. This imposed the sustainability of public finances (important for the creation of sufficient fiscal space to tackle future unfavorable macroeconomic shocks and with costs associated with an aging population) as one of the most important macroeconomic subjects for EU member states and candidates, according to its importance in maintaining EU’s stability. The subject of fiscal sustainability is relevant for the Republic of Macedonia which has a relatively low but growing level of public debt, that from the beginning of the crisis until December 2015 grew more than 20pp of GDP and reached 46.5% of GDP (38% of GDP state debt). Estimation of fiscal sustainability is an infallible part of analysis carried out by international financial institutions (IMF, World Bank) in countries of interest, including Macedonia.This is particularly important taking into account the growth tempo of Macedonia’s debt, its structure, and efficiency of fiscal politics, one of the key indicators for assessment of our stability on the path towards the EU. In context of the above, this paper defines the concept of fiscal sustainability, presents the problem’s relevance for developed countries of the European debt crisis case, and lastly, elaborates Macedonia’s fiscal politics, public debt, and fiscal sustainability.

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