About Opportunity of Fiscal Relaxation and Wage Increase in Romania or What is Like to be Caught on the Wrong Foot

Abstract

Monetary and fiscal policies are intervention tools in economy, but the manner and the magnitude of the intervention must be ensured with a technical analysis, close to what really happens, in order to prevent shocks that may be higher than for the one who makes the intervention. It is logical that the need of fiscal policy relaxation should be identified depending on the phases of the economic cycle. Fiscal policy in Romania saw a major change starting with 2016: Romania passed to tax reduction, while increasing the expenses at the same time. In other words, the fiscal policy was massively relaxed, the budget deficit in the ESA definition increased from 0.8% of the GDP in 2015, to 2.8% of the GDP in 2016. There were several analyses on this relaxed policy, especially regarding its sustainability, and few analyses regarding the efficiency of this policy in fulfilling the main goal, namely economic growth. Moreover, the new Government committed itself to following an economic agenda based on the vision of “intelligent, sustainable and inclusive” economic growth, anchored by implementation of a growth strategy based on the wage led growth.