The analysis of fiscal policy management in Romania: Lessons for emerging countries

Abstract

Subsequently to the adheration to the European Union, Romania prepares itself for the last stage of integration admission, the economic and monetary union. In this context, the study analyzes the fiscal management performance in Romania, to what extent the fiscal policy is prepared to act as a sole instrument capable of absorbing the asymmetrical shocks and stabilize the national economy after entering the Euro zone. The efficiency of the fiscal policy has been analyzed taking into consideration a reaction function assessment of the fiscal policy, both the response of the actual budget balance and of the structural budget balance being tested to the shocks of the modification in the degree of public indebtness upon the output-gap and the previous values of the primary / structural budget balance. Thus, we have analyzed the sustainability degree of the Romanian public finances during the period 1999 – Q2 2008 and we have made recommendations for strengthening the role of the fiscal policy within the mix of the Romanian macroeconomic policies. Key words: Potential GDP, output-gap, cyclically budget balance, structural budget balance, fiscal reaction function, monetary integration.