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The Efficiency of the Fiscal Policy in the EU and Its Role in the Economic Recovery by Attracting FDIs

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  • Magdalena RĂDULESCU

    ()
    (Faculty of Economic Sciences, University of Pitesti, Pitesti, Romania)

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    Abstract

    The deep global recession has focused attention on the need for countercyclical macroeconomic policies. The scope for monetary policy was hampered by the credit freeze in the financial system, which was constrained by the accumulation of toxic assets awaiting a resolution to restore confidence and efficient intermediation. While a heated debate has emerged on the specifics, the need for fiscal intervention to support demand proved to be larger and of longer duration than initially envisaged. Further, there is a need to consider lags governing the fiscal policy transmission to decide on the speed of fiscal withdrawal without jeopardizing the recovery efforts. The aim of this paper is to establish some important factors for fiscal policy effectiveness and their role in attracting FDIs in the EU countries for sustaining economic recovery here based on literature review and the EU countries’ experience. Even if the tax regime is not the only factor that determines decisions for foreign investments, reducing tax rates in some new Member States has increased the attractiveness of these countries for foreign investors.

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    Bibliographic Info

    Article provided by ScientificPapers.org in its journal Journal of Knowledge Management, Economics and Information Technology.

    Volume (Year): 1 (2011)
    Issue (Month): 7 (December)
    Pages: 23

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    Handle: RePEc:spp:jkmeit:1224

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    Web page: http://www.scientificpapers.org

    Related research

    Keywords: FDIs; fiscal policy stimulus; automatic stabilizers; macroeconomic stability;

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    1. Xavier Debrun & David Hauner & Manmohan S. Kumar, 2009. "Independent Fiscal Agencies," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 44-81, 02.
    2. Dirk Muir & Douglas Laxton & Dennis P. J. Botman & Andrei Romanov, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 06/45, International Monetary Fund.
    3. Kelly Edmiston & Shannon Mudd & Neven Valev, 2003. "Tax Structures and FDI: The Deterrent Effects of Complexity and Uncertainty," Fiscal Studies, Institute for Fiscal Studies, vol. 24(3), pages 341-359, September.
    4. Xavier Debrun & Radhicka Kapoor, 2010. "Fiscal Policy and Macroeconomic Stability," IMF Working Papers 10/111, International Monetary Fund.
    5. Jaewoo Lee & Douglas Laxton & Michael Kumhof & Charles Freedman, 2009. "The Case for Global Fiscal Stimulus," IMF Staff Position Notes 2009/03, International Monetary Fund.
    6. Antonio Fatás & Ilian Mihov, 2010. "The Euro and Fiscal Policy," NBER Chapters, in: Europe and the Euro, pages 287-324 National Bureau of Economic Research, Inc.
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