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Fiscal Policy during the current Crisis

  • Bunea-Bontas, Cristina Aurora
  • Petre, Mihaela Cosmina

Fiscal policy is an important government tool for managing the economy, having the ability to affect the total amount of output produced - GDP. Changes in the level and composition of government spending, taxation or other instruments of fiscal policy have impact on aggregate demand, the pattern of resource allocation, and the distribution of income. The article shows the mechanisms through which fiscal policy stabilizes the business cycle, and the specific requirements for fiscal policy during recession; the practical problems that may occur in implementing an effective fiscal policy are emphasized. Regarding the circumstances of the current financial and economic crises, the revival of the fiscal policy as a macroeconomic policy faces high expectations as to what it can accomplish. The paper highlights the composition of fiscal stimulus package, and reviews the specific fiscal stimulus plans adopted so far by different countries and their objectives. The final section contains an overview of the Romanian government response to the current crises, regarding fiscal policy. The conclusion is that Romania has conducted an inconsistent and ineffective fiscal policy, which has contributed to macro-economic and fiscal imbalances and to an increased fiscal pressure on business. Therefore, a medium-term fiscal framework has to be implemented, in order to ensure effectiveness and fiscal sustainability.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18676.

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Date of creation: 13 Nov 2009
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Handle: RePEc:pra:mprapa:18676
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  1. Martin Feldstein, 2002. "The Role for Discretionary Fiscal Policy in a Low Interest Rate Environment," NBER Working Papers 9203, National Bureau of Economic Research, Inc.
  2. Antonio Spilimbergo & Steven A. Symansky & Carlo Cottarelli & Olivier J. Blanchard, 2009. "Fiscal Policy for the Crisis," IMF Staff Position Notes 2008/01, International Monetary Fund.
    • Antonio Spilimbergo & Steve Symansky & Olivier Blanchard & Carlo Cottarelli, 2009. "Fiscal Policy For The Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 10(2), pages 26-32, 07.
  3. Sanjeev Gupta & Carlos Mulas-Granados & Emanuele Baldacci, 2009. "How Effective is Fiscal Policy Response in Systemic Banking Crises?," IMF Working Papers 09/160, International Monetary Fund.
  4. Torben M. Andersen, 2009. "Fiscal policy and the global financial crisis," Economics Working Papers 2009-07, School of Economics and Management, University of Aarhus.
  5. Paolo Mauro & Mark A. Horton & Manmohan S. Kumar, 2009. "The State of Public Finances: A Cross-Country Fiscal Monitor; A Cross-Country Fiscal Monitor," IMF Staff Position Notes 2009/21, International Monetary Fund.
  6. Vito Tanzi, 2008. "The role of the state and public finance in the next generation," OECD Journal on Budgeting, OECD Publishing, vol. 8(2), pages 1-27.
  7. Ray Barrell & Tatiana Fic & Iana Liadze, 2009. "Fiscal Policy Effectiveness in the Banking Crisis," National Institute Economic Review, National Institute of Economic and Social Research, vol. 207(1), pages 43-50, January.
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