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An Empirical Analysis Of The Interdependencies Between Investment, Economic Growth, And Fiscal Performance: Evidence From Romania

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  • Nicoleta Claudia MOLDOVAN

    (West University of Timisoara, Romania)

  • Cristi SPULBAR

    (University of Craiova, Romania)

  • Simona Maria ENE

    (University of Craiova, Romania)

  • Raluca Ioana RACATAIAN

    (West University of Timisoara, Romania)

Abstract

The main objective of this research is to analyze the complex interdependencies between economic growth, measured by GDP per capita, fiscal performance, and investment in physical capital. The analysis of how these variables influence each other, both in the long and short term, was conducted using the econometric Vector Error Correction Model (VECM). By testing hypotheses confirmed in the specialized literature regarding the relationships between tax revenues, public expenditures, and capital formation, the paper aims to contribute to the development of the academic foundation that supports policymakers and authorities in promoting effective and sustainable economic policies. To this end, we investigated how efficient taxation can stimulate economic growth, as well as the impact of an excessive fiscal burden on economic motivation. In addition, the relationships between tax revenues and public expenditures, the impact of economic growth on capital formation, and the influence of fiscal performance on government borrowing and long-term economic stability were examined. The existence of cointegration relationships among the variables suggests that they evolve along a common long-term equilibrium path, despite short-term fluctuations, with the results outlining the contribution of public expenditures and tax revenues to supporting a sustainable trajectory of real GDP. Shocks to fiscal pressure generate propagated effects on other economic components, including GDP and investment, demonstrating the systemic nature of fiscal transmission. The variance decomposition highlighted the significant contribution of fiscal variables to the evolution of net liquidity and fiscal pressure, indicating their importance in macroeconomic dynamics. Therefore, the formulation of effective economic policies must take into account the complexity of the relationships among economic variables. A balance between taxation, public expenditures, and investment in physical capital is essential for ensuring sustainable economic growth, while fiscal policy must be adapted to respond promptly to economic shocks in order to maintain long-term macroeconomic equilibrium.

Suggested Citation

  • Nicoleta Claudia MOLDOVAN & Cristi SPULBAR & Simona Maria ENE & Raluca Ioana RACATAIAN, 2025. "An Empirical Analysis Of The Interdependencies Between Investment, Economic Growth, And Fiscal Performance: Evidence From Romania," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 20(1), pages 340-373, April.
    • Handle: RePEc:blg:journl:v:20:y:2025:i:1:p:340-373
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    References listed on IDEAS

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