Romanian Fiscal Policy Sustainability during Financial Crisis: A Cointegration Approach

The fiscal policy type depends on the economic stage: recession or expansion. Taking into account these two economic stages, the central authority of each country is adopting different measures in order to stimulate (during recession period) or to temperate (during boom period) the economy. The purpose of these measures is to obtain economic stability of the country for a long period of time. Therefore, this paper is emphasizing fiscal policy sustainability in Romania. Maintaining fiscal sustainability is very important for both macroeconomic stability and financial capacity of the country. Our results reveal that the public expenditure responds better to shocks caused by structural changes in revenue, compared to the opposite case. This fact indicates that there is still a hope in the sustainability of Romanian fiscal policy on long term.