INEFFICIENCY OF PUBLIC INVESTMENT IN ROMANIA

According to Keynes, increasing of the public investment is one of the best solutions to economic recovery, since it causes strong effects upon the economic growth. However, according to recent studies, public investment expenditure generates less effect in the short term, due to the lags associated with the achievement of new project, but a larger long-term impact by stimulating potential GDP through increase of the capital stock and of total factor productivity. In this study I have aimed to analyze the influence of public capital spending on economic growth and to explain how it could generate sustainable recovery of the Romanian economy. My conclusion is that increasing of the public investment, which took place during the economic expansion of the Romania has generated a little effect, given that many of the projects started in one year were not funded in the following financial years.public investment; economic growth; fiscal multiplier

Optimality, rational expectations and time inconsistency applied to inflation targeting strategy

The purpose of this paper is to analyse the characteristics of an inflation targeting strategy, using the Barro-Gordon model specific tools. This paper uses the initial Barro-Gordon concepts of inflationary social costs and benefits, adding a new dimension generated by the cost of output deviating from the potential level. The main contribution of this paper is the exhaustive study of the time inconsistency problem generated by the very existence of a policymaker-established inflation rate. The mathematic simulation of a model allowed a complete analysis of several parameters’ influence (parameters such as the optimal rate of inflation, the discount rate, the importance structure of inflationary social cost) on the applicable range of the target inflation rate, range that guarantees that the policymakers have no incentive to break their own rules, or at least this incentive is somewhat inferior to the future cost of doing so.optimal inflation rate; inflation targeting strategies; the Barro-Gordon model; output gap; central bank credibility

WHY IS THE FISCAL POLICY IMPOSED BY IMF PRO-CYCLIC?

The economies which appealed to the IMF loan faced difficulties related to financing the public and the private foreign debt. IMF imposed the promoting of a restrictive fiscal policy to the beneficiary countries, in order to decrease the budget deficit, e: fiscal policy stance, structural budget balance, IMF agreement, economic recession

THE ANALYSIS OF POTENTIAL OUTPUT GROWTH IN THE EURO AREA

The objective of this paper is to apply some decompositions of the production function to explain the impact of the labour, capital and factor productivity (TFP) upon the economic growth in the euro area. To achieve this objective, I have used the results obtained in the economic literature, such those of the McQuinn si Whelan (2006). Based on preliminary results, I have made an exercise to estimate the potential output growth in the Euro area in the next year according actually trend.euro area; economic growth; total factor productivity (TFP); labour productivity; Solow model. REL Classification: 8E; 3D.

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

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

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

Labour market deficits in Romania. A regional approach

The labour market is strongly segmented, being normally characterized by the coexistence of two forms of deficits: the labour demand deficit (i.e. unemployment) and the labour offer deficit (i.e. vacancy jobs). As these deficits are obvious in the case of some different occupations or of some different regions, then they will have a weak compensation. Between 2005-2008 these deficits are increasing at Romanian regions level. The most important of them are in Public administration, and Education. On regions the most importants deficits are in Bucharest-Ilfov (the richest) and North-East (the poorest). On Occupation group the biggest deficits is for specialists with intellectual and scientific occupations. There is also a trend of increasing for labour market defficits on regional level. The most important regonal deficits are in: North-East, West and Bucharest-Ilfov. On regions the most important deficits are for Farmers and skilled workers in agriculture, forestry and fishery in Bucharest-Ilfov (gravitational effect) and South-West: specialists with intellectual and scientific occupations: West,and Bucharest-Ilfov; workers for maintenance and adjustment: North-East. There is a negative relation between the two deficits, so that the rate of unemployment tends to get decreased below the level of the natural unemployment and the rate of the vacancy will get increased during the periods when a strong economic growth is recorded; the inverse relation has been represented within the "Beveridge curve". This study is to confirm the validity of the Beveridge curve for Romania during the period between January 2004 and June 2009, using the monthly data. The estimated model has been a VAR type one, in which the two variables have been represented as first differences with 3 time lags

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)