Republic of Estonia: Selected Issues

IMF Staff Country Reports, July 14, 2025

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Republic of Estonia: Selected Issues

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Bibliographic details

• Published: July 14, 2025
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798229017800.002

Purpose and focus

• Reexamines fiscal multipliers for Estonia with a view to highlighting policy trade-offs and providing growth-friendly options for fiscal consolidation.
• Asks whether recent measures have significant short-term effects on growth and seeks granular estimates of fiscal multipliers by type of instrument—on both revenue and spending—to shed light on potential short-term output costs and underpin policy advice on specific instruments for fiscal consolidation.
• Concludes: "The results indicate that multiplier effects in Estonia are not negligible."

Recent economic and fiscal context

• The pandemic triggered a sharp and partly permanent increase in government spending.
• Demand for better quality and broader provision of public services has materialized.
• Climate and ageing-related spending pressures are set to intensify over time.
• Geopolitical risks have triggered a sharp increase in defense spending.
• Despite the 2022–2024 protracted recession, Estonian authorities implemented policy responses.

Policy responses enacted

• Two rounds of wide-ranging tax changes affecting:
  • personal income tax
  • corporate income tax
  • value added tax
  • excises
• Spending cuts based on comprehensive spending reviews were enacted.

Key analytical approach

• Uses granular estimates of fiscal multipliers by type of instrument for both revenue and spending to evaluate short-term output costs and to inform policy choices for consolidation.

Subject areas and keywords (as listed)

• Subject: Corporate income tax, Income, Income and capital gains taxes, Income tax systems, Labor productivity, National accounts, Production, Taxes
• Keywords: Baltics, Corporate income tax, distribution of entrant firm, employment share, Europe, Global, IMF's Bucket Approach, Income, Income and capital gains taxes, Income tax systems, income taxation, Labor productivity, labor taxation

Content in this bundle

• Republic of Estonia: Selected Issues; IMF Country Report No. 25/182; June 16, 2025
  • Republic of Estonia: Selected Issues; IMF Country Report No. 25/182; June 16, 2025 (Markdown version)
  • Republic of Estonia: Selected Issues; IMF Country Report No. 25/182; June 16, 2025 (PDF)