Fiscal discipline and economic growth – the case of Romania

Dumitru, Ionut and Stanca, Razvan (2010): Fiscal discipline and economic growth – the case of Romania.

Abstract

The fiscal and budgetary policy should play a key role to alleviate the impact of the business cycle on the real economy. Procyclical fiscal policy is particularly undesirable in developing countries, as it not only exacerbates the business cycle, but also the high output volatility hurts the poorest people with low safety net. This paper assesses the structural budget deficit in Romania during 2000-2009 and evaluates the role of the fiscal policy during the business cycle. The paper concludes that the fiscal policy in Romania was highly procyclical, exacerbating the economic cycle. In order to escape from this procyclicality, Romania needs deep structural reforms in order to restore the sustainability of the public finances and put Romania on a sustainable growth path.

• Item Type: MPRA Paper
• Language: English
• Keywords: structural budget balance, procyclicality of fiscal policy, fiscal discipline
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents; H - Public Economics > H6 - National Budget, Deficit, and Debt

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