The impact of the vat reduction on food in Romania

Fiscal policy is a means through which government representatives adjust a country’s expenditure and tax rates. The first purpose of a fiscal policy is to review and influence a country's economy, while the ultimate purpose of a fiscal policy is to ensure fiscal efficiency as well as a greater yield on tax revenue collection for the state budget. There are several types of fiscal policies, depending on the state in which a country’s economy is currently in: a county can be either in recession, it can have a period of economical stability or its economy may very well be expanding. In light of this, state authorities can adopt various measures to stimulate the economy in times of recession, or to temper excessive demand in times of an economic boom, the goal being that of obtaining economic stability in the longhaul. Nowadays, the measures proposed for fiscal loosening in Romania represent a controversial topic, the main concern being the ability to offset the negative impact the new tax code will have on the state budget. Amongst these recently adopted fiscal policies is to lower the value added tax (acronym V.A.T.) on foodstuffs, specifically from a 24% rate to a 9% rate. This paper will provide a detailed analysis of the effect that this reduction will have on the budgetary balance for 2015. The analysis is based on information from various sources such as the European Union Statistical Database, respectively ec.europa.eu/Eurostat, The Ministry of Public Finance of Romania, The National Institute of Statistics and the Fiscal Council of Romania.