Keywords

fiscal policy, fiscal rules, fiscal governance, debt sustainability analysis, Croatia, EDP

The aim of this paper is to explain the main features of the latest reform of the EU fiscal framework and to illustrate the differences between the new and old EU fiscal rules, using Croatia's experience during the Excessive Deficit Procedure (EDP) activated in 2014. Our results suggest that the new rules provide greater flexibility, allow for a longer fiscal adjustment, and mitigate the potential pro-cyclical nature of fiscal consolidation. The main limitation of our analysis are the difficulties related to the construction of a hypothetical scenario that would fully capture the political, economic, and institutional context surrounding the activation of the EDP in Croatia, or assumptions regarding the behaviour of fiscal policymakers in such a scenario. The paper nevertheless contributes to the ongoing debate on the implications of the reform of EU fiscal rules at both academic and policy levels.