An Evaluation of the Economic and Financial Crisis's Impact on Local Budgetary Aggregates: The Romanian Case

Abstract

Under circumstances of economic and financial crisis, a deterioration in the budgetary position of both central and local governments occurs, although the latter are assigned, to a greater extent, with revenues from taxes with a stable taxable base (such as property taxes). At the same time, measures designed to counter the effects of the crisis should be promoted by both the central government, which traditionally performs the task of macro stabilization, and the local governments which, considering the responsibilities assigned to them and the local dimensions of the crisis, should supplement central government's efforts and support for the occurrence of the expected positive effects. In order to outline some possible courses of action, it is, however, necessary to perform a careful analysis of the effects of the crisis on local governments’ revenues and expenditures. This is only rarely assumed in the literature (especially for the case of Romania), often concerned with the issue of the central budget. On these grounds, this paper aims to provide, based on the analysis of data coming from Eurostat, the Romanian Ministry of Public Finance, the Romanian National Institute of Statistics and the Fiscal Council, a detailed assessment of the effects of the crisis on the revenues, expenditures, budget balance and debt of Romanian local governments, highlighting their peculiarities in relation to the effects recorded by the theory or by other Central and Eastern European countries. The paper also aims, by analyzing the changes recorded in the structure of Romanian local budget revenues and expenditures, to assess the rationality of the measures adopted at local level during the crisis, as well as their compatibility with the objectives of economic stabilization and long-term economic growth, suggesting, when appropriate, some alternative viable solutions.