Changes in Values of Public Expenditure and Government Revenue and their Impact on Economic Growth: A VAR Approach Related to Romania

The paper intended to explain the impact of tax revenues along with the public expenditure on the economic growth. The study involves the estimation of an unrestricted VAR (Vector Autoregressive) model which included as endogenous variables the rate of the economic growth, the level of tax revenues as percentage of Gross Domestic Product (%GDP) and the level of public expenditure as percentage of Gross Domestic Product (%GDP). The econometric model was based on the multivariate time series related to Romania over the period of 2009 (2nd quarter) and 2017 (2nd quarter). It was used the impulse response function in order to estimate results of the VAR model for a short or medium-term period. According to the impulse response function, it was revealed that a positive impulse in the level of public expenditure or in the level of tax revenues would result in a negative correlation with the evolution of the economic growth for the next future periods of time. Further on, according with the results of the co-integration rank test, it was revealed that there is no long-run relationship between the chosen endogenous variables. For estimating which type of fiscal policies should be better implemented by the state, the causality link between tax revenues and public expenditure was explained due to the Granger-causality test which revealed a unidirectional form from government expenditure to tax revenues.