The Impact of Automatic Stabilizers on the Economic Growth of Albania During the Period 1999-2021

Abstract

Fiscal policy remains a crucial and powerful strategy to improve the welfare of citizens. During the last three decades, Albania has faced enormous social-economic challenges, raising the necessity for an adequate fiscal policy under the current economic situation. The correlation between fiscal policy and economic growth is a highly debated topic in literature reviews, as some of the fiscal tools do not influence in the same direction on economic growth. The purpose of the article is to see the influence of Automatic Stabilizers (AS) on the Economic Growth of Albania during the period 1999-2022. Most of the topics have been focused on the influence of active fiscal policy on economic growth despite this an unclear gap exists about the influence of the automatic fiscal policy, especially in Albania reality. The secondary data of the Ministry of Finance and INSTAT institutions about the variables and the factors that influence them like the tax system, tax revenues, and public expenditures are analyzed for this purpose. The conclusions reveal the necessity to improve especially the formula of the tax system according to the challenges of the economy. For almost three decades, the data of Automatic Stabilizers (AS) have been included in the multiple linear regression equation using the Ordinary Least Square (OLS) technique. The empirical result shows a narrow positive impact range of Automatic Stabilizers on Economic Growth. The change in the tax system and events such as the earthquake on November 9th, 2019, and the Covid-19 pandemic seem to have had a huge impact on this relationship. As Automatic Stabilizers have to do with vulnerable groups (social assistance is part of AS), some actions should be undertaken focusing on the improvement of the tax system, according to optimal management of expenditures. Applying the best practices to increase the revenues of vulnerable groups is necessary to cope better with the increasing actual rate of inflation.