The flat tax in Romania. A good economic strategy?

This paper evaluates the main effects of the implementation of tax flat system in Romanian economy. If accompanying measures are not going to be enforced, the introduction of the flat rate of 16% in Romania will lead to unsustainable budgetary deficits and inflationist pressures. The flat tax favors the workers with big salaries and also big and financially solid companies (which, mainly “export” the profit). It will attack the fragile macroeconomic stability. It is uncertain if it will lead to the increase of the degree of employment, having in view the fact that the contributions to the social insurances have a very high level. The alternative scenario is simple. Romania should have chosen to continue what it was confirmed to be a valid element of the economic evolution towards a European standard (progressive fiscal system).flat tax; fiscal policy; inflation; AD-AS model

RECENT APPROACHES IN THE OPTIMUM CURRENCY AREAS THEORY

This study is dealing with the endogenous characteristic of the OCA criteria, starting from the idea that a higherconformity of the business cycles will result in a better timing of the economic cycles and, thus, in getting closerto the quality of an optimum currency area. Thus, if the classical theory is focused on a static approach of theproblem, the new theories assert that these conditions are dynamic, and they cannot be positively affected evenby the establishment of the Economic and Monetary Union. The consequences are overwhelming, as theendogenous approach shows that a monetary union can be achieved even if all the conditions mentioned inMundell’s optimum currency areas theory are not met, showing that some of them may also be met subsequentto the unification. Thus, a country joining a monetary union, althogh it does not meet the criteria for an optimumcurrency area, will ex post lead to the increase of the integration and business cycle correlation degree

IS READY ROMANIA FOR EURO ADOPTION? FROM STRUCTURAL CONVERGENCE TO BUSINESS CYCLE SYNCHRONIZATION

The objective of this study is to identify gaps between economic and commercial structures between Romania and the euro area and to explain whether the results obtained justify recently decision to delay euro adoption beyond 2015. According to theory of optimum currency areas, the existence of similar economic structures, increasing trade integration and synchronization of business cycles with monetary union will provide greater symmetry of shocks between Romania and the euro area. If the shocks are more symmetrical, then common monetary policy of the European Central Bank will act as a tool to neutralize the shocks in the case of Romania, and the euro adoption would have fewer adverse effects. To meet the research objective, we have structured this paper into three parts. In the first part we referred to the importance of the proposed theme in the economic literature. In the second part, we used several statistical methods to identify how divergent is Romania relative to the euro area economies. The results obtained show increasing divergence between economic structures until 2009 year using the NACE 6 methodology. In fact, Romania has the most divergent structure in EU-27 countries, being characterized by lowest contribution of services to GDP. However, structural differences do not constitute an obstacle to euro adoption, as long as Romania becomes more commercially integrated with other European countries. Thus, Romania is the seventh economy in terms of trade with the EU-27 (73.3% of exports and 74.3% of imports), and the degree of convergence between the structure of exports and imports have increased significantly compared with 2000 year. In the third part, we estimated the degree of synchronization of business cycles between Romania and the euro area, based on Hodrick-Prescott filter. Results showed an increasing correlation of business cycles as a result of increasing industrial activity and export synchronization.euro area, sectoral divergence, business cycle synchronization, Krugman index, Hodrick-Prescott filter

THE ANALYSIS OF EQUITY-EFFICIENCY TRADE-OFF IN THE EUROPEAN UNION ECONOMY

The European Union’s economic evolution for the last sixty years is specific to the long term stages of the economic cycle, of Kondratieff type. The economic expansion period has been characterized by a higher efficiency level (growth in productivity, in the labour occupation degree) which favoured the reducing of the inequalities related to incomes through the redistribution process. The economic recession stage showed that, under the terms of an increased unemployment, of a low aggregate demand and of a less flexible aggregate supply, the economic efficiency level is relatively lower. On these conditions, the providing of social equity (of the cohesion) will affect negatively the efficiency degree, fact which will extend the period of economic recession within The European Union.economic growth, labour productivity, economic recession, total factor productivity

Quantitative vs. Qualitative in the Romanian Fiscal Adjustment

As it encountered a fiscal event (budget liquidity crisis) in 2009, Romania should have proceeded to one of the most ambitious fiscal correction in the last 30 years in EU. Nevertheless, the absence of vision regarding the increase in quality of the fiscal adjustment is obvious. The fiscal correction made until now has rather been a quantitative one, falling within certain strictly numerical targets. In this paper, we present a series of signals arguing for the necessity to increase the fiscal quality. Moreover, we propose a few immunization mechanisms of the Romanian economy against the contagion of the current uncertainty in the Euro area or against the future crises

Public Pensions Reform in Romania. How Affect the Public Finance Sustainability?

This paper deals with the problem of the public pension system’s sustainability in Romania and its impact upon the sustainability of the public finance. Thus, the public pension deficit increased in the last three years, caused by the unsustainable increase of pensions during expansionary years and by decrease of number of taxpayers in the economy. Unfortunately, the pressure on public pension system will continue in the next decades due to decline of the total population and of the working age population and to increasing share of the older people. The first part of the paper is an explanation for the factors which affect the public pension system, and it presents this system’s vulnerabilities. The second part is a brief presentation of the effects of the reforms made after December ’89, with reference to the public pension system. The third part outlines the impact of the unitary pension law upon the improvement of the balancing position of the public pension system. The last part makes an analysis for the budget impact of the unitary pension law, outlining the comparison between the basic scenario – keeping the current system and the alternative scenario, which provides a rich package of reforms with reference to this field.public pensions system, private pensions system, finance sustainability, reforms, ageing problem

From Solow Model to endogenous economic growth – Romania’s reinsertion into civilization?

This paper evaluates the determinants of growth in GDP per capita in industrialized countries and the lessons for the Romanian economy. How can Romanian economy grow faster? The neoclassical model show that the important determinants of growth are technical progress, increased labor supply and capital accumulation. The endogenous growth theory considers that the inventions of new technology, investing in human capital are the principal factors which fueled long run growth. How can the Romanian economy obtain a continued growth process?economic growth, endogenous growth, poverty trap

The flat tax in Romania. A good economic strategy?

This paper evaluates the main effects of the implementation of tax flat system in Romanian economy. If accompanying measures are not going to be enforced, the introduction of the flat rate of 16% in Romania will lead to unsustainable budgetary deficits and inflationist pressures. The flat tax favors the workers with big salaries and also big and financially solid companies (which, mainly “export” the profit). It will attack the fragile macroeconomic stability. It is uncertain if it will lead to the increase of the degree of employment, having in view the fact that the contributions to the social insurances have a very high level. The alternative scenario is simple. Romania should have chosen to continue what it was confirmed to be a valid element of the economic evolution towards a European standard (progressive fiscal system)

The flat tax in Romania. A good economic strategy?

This paper evaluates the main effects of the implementation of tax flat system in Romanian economy. If accompanying measures are not going to be enforced, the introduction of the flat rate of 16% in Romania will lead to unsustainable budgetary deficits and inflationist pressures. The flat tax favors the workers with big salaries and also big and financially solid companies (which, mainly “export” the profit). It will attack the fragile macroeconomic stability. It is uncertain if it will lead to the increase of the degree of employment, having in view the fact that the contributions to the social insurances have a very high level. The alternative scenario is simple. Romania should have chosen to continue what it was confirmed to be a valid element of the economic evolution towards a European standard (progressive fiscal system)

The European Model: Economic Growth, Convergence and Cohesion

The european model is confronted with a potential crise. Economic convergence concerns the gaps in living standards between countries: are they closing or widening, and at what speed? Are relatively poor economies to remain poor for many generations? Are the rich countries of next century to be the same as relatively rich countries of nowadays? Is the degree of income inequality across economies increasing or falling over time? Posing these questions, motivating convergence debate, immediately raises the problem of the variable/variables that need to be considered. In our study, prior to providing answers to these questions, basic definitions concerning convergence in European model are followed by an overview of specific features, achievements and hurdles countries have had to overcome on their way from centrally planned towards market economy. After that, a summary of Solow-Swan model of economic growth is offered. Concept of convergence emerges here as a natural implication of the model. The distinctions between Solow-Swan model and endogenous growth model are stated. Finally, some measures of macroeconomic policy for sustainable growth are presented and interpreted in connection with real macroeconomic situation of the Romanian economy