Abstract
Fiscal policy influences economic conditions through public spending and taxes, generating positive or negative impulses, both on short and long term. The present research focuses on analysing the effects of the discretionary changes in the fiscal policy in seven post-communist countries of the European Union during the period 2000–2018. The autoregressive distributed lag model (ARDL) has been applied in order to obtain the convergence rates to equilibrium with a clear analysis of the periods needed to achieve the long-run fiscal sustainability. Also, the error correction vector model (VECM), which is based on the autoregressive vector (VAR) model, has been used in the second part of the analysis focusing on the Cholesky factorization of innovations. Impulse-response functions aiming to estimate the response of government expenditures to the shock produced by three macroeconomic variables have been identified.
Highlights
Fiscal policy is an important component of macroeconomic policy
Using a data set for the period 2000–2018, was made an estimation of the elasticity of long-term government spending and convergence rates at equilibrium, and an estimate of the impulse-response functions highlighting the shocks exercised by the exogenous variables analysed on the government expenditure, taking into account the interactions between the data series
The panel vector error correction model applied to the seven countries in the analysis, as well as the vector error correction model applied to Romania, will allow the estimation of the impulse-response functions in order to identify the shocks that the exogenous variables produce on government expenditure
Summary
Fiscal policy is an important component of macroeconomic policy. The state can use the tools that it provides to restore economic balance, along with government spending. Using a data set for the period 2000–2018, was made an estimation of the elasticity of long-term government spending and convergence rates at equilibrium, and an estimate of the impulse-response functions highlighting the shocks exercised by the exogenous variables analysed on the government expenditure, taking into account the interactions between the data series In this context, the rest of the paper is further structured as follows: Section 1 Review of the literature, which performs a brief critical approach of the existing studies in the field of the approached issue; Section 2 Research Methodology; Section 3 Empirical results and discussions, obtained by processing the collected data and their interpretation. The conclusions drawn from the conducted study, placed in the context of the existing literature, as well as the limits of the research and future directions to be explored have been systematized
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