Overcoming the Effects of Restrictive Fiscal Policy: The Case of Argentina and Serbia

Abstract

The paper analyses one of the most important economic issues relevant to most countries. The issue involves how to as painless as possible overcome the problems of high budget deficits and excessive accumulated public debt. Argentina and Serbia are used as an example. Argentina implemented rigorous saving measures in 2002 and Serbia began to implement restrictive budgetary measures in 2014. The effects of such a policy can be designed for the future. Results indicate that the key to Argentina’s success lies in the transition to a floating exchange rate and the high level of correlation between the growth of the foreign exchange rate and growth in exports. When comparing strict fiscal policy in Argentina and Serbia, it should be emphasised that the measures in Serbia are far less stringent than those that were established in Argentina. But it also means that the effect of reducing budget expenditures should have less of an impact on GDP reduction than in the case of Argentina.