Source: OECD Economic Surveys, Volume 2009, Number 3, April 2009 , pp. i-151(152)

Publisher: OECD - Organisation for Economic Co-operation and Development

Abstract:

Estonia grew faster than most emerging market economies during 2000-07, but it is now in a severe recession. This first edition of OECD's periodic review of Estonia's economy includes chapters covering getting back to a sustainable growth path, fiscal policy, labour market reform, housing policy, and the the business environment.

Executive Summary

Assessment and Recommendations

Chapter 1. Getting Back to a Sustainable Growth Path is the Key Policy Challenge

-The current economic situation is the most challenging since the early 1990s.

-Medium-term prospects remain favourable, but hinge on reforms

--Challenges ahead - bringing Estonia back onto a high sustainable growth path

-Annex 1.A1. A Growth Accounting Exercise for Estonia

-Annex 1.A2. A Shock Synchronisation between Estonia and the Euro Area.

Chapter 2. Removing the Pro-Cyclical Bias of Fiscal Policy

-Trends in fiscal policies and outcomes

-Modifying the current fiscal rule - increasing flexibility without jeopardising sustainability

Chapter 3. Strengthening Financial Stability while Reducing Distortions in the Housing Market

-After a boom, the housing market is experiencing a sharp downturn

-High indebtedness has made households vulnerable to adverse shocks

-Avenues to reduce households' vulnerability to interest rate increases

-Fiscal policies contributing to increased housing demand and house prices

-Housing policies to address social imbalances

-Annex 3.A1. Explaining House Price Developments in Estonia

Chapter 4. Increasing Flexibility and Reducing Segmentation of the Labour Market

-The labour market: outcomes and challenges ahead

-Making labour market institutions more flexible

-Integrating ethnic non-Estonians and foreign workers into the labour market

-Annex 4.A1. Model of Reforming Labour Market Institution: Application to Estonia

-Annex 4.!2. Current Labour Market Institutions in Estonia

Chapter 5. Enhancing the Business Environment to Foster Productivity

-Estonia's framework conditions mostly support a well-functioning business environment

-E-government plays a key role

-Catch-up has been fast, but a gap with the productivity level of advanced OECD countries remains

-The tax system could do more to support investment, innovation, and entrepreneurship

-Product market regulatios facilitate competition, but some aspectts call for further reforms

-Effectiveness of policies supporting innovation and entrepreneurship could be enhanced

-Private sector development in poorer regions should be encouraged

-Summing up

Document Type: Review article

Publication date: 2009-04-01

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