Do Fiscal Rules Constrain Fiscal Policy in Romania?

Abstract

At both macroeconomic and national level, in recent decades, European tax policies have shown a particular interest in addressing the spectrum of risk issues in terms of maturing the business environment and the lack of sustainable development of the economy. In Romania there has been a significant increase in public debt, which is increasingly threatening fiscal sustainability. This is due to fiscal rules that restrict the applicability of fiscal policy to balancing the national economy. However, fiscal policy did not act in the direction of economic recovery during the crisis that started in the last quarter of 2008, which had a negative impact on the Romanian business environment. Objectively, fiscal policy should manifest itself as a general framework of the economy on the basis of which to develop fiscal rules that act in the direction of sustainable development of the business environment and implicitly, of socio-economic life. The research carried out referred to identify how fiscal rules in Romania restrict the application of fiscal policy as well as whether there is an explicit concordance between them. The research methodology aimed to use the ARDL model to apply the Granger causality test, using quarterly data for a set of four indicators, being identified that Romanian fiscal rules restrict fiscal policy. The achieved results highlighted the fact that fiscal rules restrict fiscal policy, being identified a long-run relationship between the analyzed variables and implicitly, a state of instability of the fiscal system in Romania.
 Keywords: fiscal policy, autoregressive distributed-lagged model, Granger causality test.

The Effects of Fiscal Policy Shocks on the Business Environment

“…The affiliation of these countries, also called satellite countries, to the Eastern bloc, have left a serious mark on the development of their economy. The communist regimes in Eastern Europe collapsed only at the end of 1989, when both Romania and states such as Bulgaria, Hungary or the Czech Republic gained economic sovereignty (Vodă et al, 2020). The late transition to a market economy but also novice fiscal practices are the impediments to the effects of the implementation of fiscal policies focused on the use of government spending as a tool to alleviate shocks.…”