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An Assessment of Fiscal Sustainability in Romania

  • Doina Maria Radulescu

This article analyses Romanian fiscal policy during the 1990s with the main emphasis on the aspect of sustainability of the budget situation. First, the study presents the general development of Romania's economy during the transition period as background for the subsequent policy analysis. Second, the problems of quasi-fiscal subsidies and payment arrears which led to very large quasi-fiscal deficits are highlighted. In the next step, a macroeconomic model is introduced to assess the degree of fiscal sustainability starting with the inter-temporal government budget constraint. The overall deficit for the general government, including central and local governments as well as other institutions belonging to the non-financial public sector, is computed using official statistics. The research findings suggest that Romania has followed an unsustainable fiscal policy in the transition period, particularly up to 1996. In the first half of the 1990s the government financed the deficit partly through seignorage and tried to deal with immediate pressures, preventing social dissatisfaction but neglecting long-term targets. The situation has improved slightly in recent years, nevertheless, there is still much to be done in this area.

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Article provided by Taylor & Francis Journals in its journal Post-Communist Economies.

Volume (Year): 15 (2003)
Issue (Month): 2 ()
Pages: 259-275

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Handle: RePEc:taf:pocoec:v:15:y:2003:i:2:p:259-275
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