SIMILAR ARTICLES

70% of economic growth in first three quarters of 2018, obtained by stocks increase. Foreign exchanges pulled down GDP by 1.6 percentage points

INS recalculated GDP in the third quarter and the first three quarters of the year. Here are the growth data for the Romanian economy, updated… Mai mult

Romanian Leu of 2019: Depreciation rate depends on budget credibility and seriousness

The estimates by economists of most important banks in Romania on the depreciation of the local currency for this year range between 4.73 and 4.77… Mai mult

Romania and energy: Position in European context

Final energy consumption of Romanian industry declined by about 75% between 1990 and 2016, compared to only 25% at the EU level, according to data… Mai mult

Crash signal in foreign trade – export coverage ratio has fallen to 2011 level. And we do not import robots

The trade deficit on November 2018 was EUR 1.567 billion, the second worst monthly performance registered last year. Worryingly, the growth rate of exports compared… Mai mult

Intense M&A activity in 2018 in Romania – Deloitte analysis

The Romanian mergers and acquisitions market reached nearly EUR 2 billion in 2018, according to a Deloitte Romania analysis based on public sources and transactions… Mai mult

Cronicile

Fiscal Council – Analysis in a regional context: How pro-cyclical tax policies compromise long-term economic growth

de Adrian N Ionescu , 23.4.2018

Romania is captive of tax and wage policies that are hostile to long-term sustainable development.

One of the most striking arguments is the very large amplitude of GDP deviations from the potential, resulting from a pro-cyclical policy which reduces taxation, although it would not be needed as the economic growth is already high, according to a study by economist Ionut Dumitru.

The “output gap” indicator (GDP deviation from the potential) is the furthest from the potential in Romania, unlike Poland, Hungary and the Eurozone.

In 2008, which preceded the crisis, the GDP growth deviation from the real potential of the economy was more than double in Romania compared to Hungary and about six times higher than in Poland.

“The amplitude of the economic cycle is very high in Romania,” and “the discretionary fiscal policy exacerbates the fluctuations of the economic cycle,” says Ionut Dumitru.

*

  • Very high amplitude of the economic cycle in Romania
  • Output gap indicator (GDP deviation from the potential)

*

Basically, the Government repeats the pro-cyclical policy errors of that year (reduction of taxation when the economy was growing anyway even without this incentive), with the political support of a parliamentary majority that refuses the dialogue based on arguments.

Because of the pro-cyclical tax policy during (still) the ascending phase of the economic cycle:

  • “The discretionary fiscal inventive is maintained although it should have been withdrawn.
  • the available fiscal space is utilized unnecessarily and macroeconomic imbalances occur.
  • It accentuates the economic boom phase,” says Ionut Dumitru’s study.

In the downward phase, it will be seen that:

  • “There were not enough” buffers “created in good times and the fiscal space has been exhausted at that time.
  • the implementation of pro-cyclical policies during the ascendant phase does not leave the option of a counter-cyclical policy in the downward phase.
  • (pro-cyclical policy) accentuates recession.”

 

*

  • Discretionary fiscal policy exacerbates fluctuations of the economic cycle
  • Primary fiscal impulse (the increase of the structural primary deficit, share of GDP, the axis on the right side)
  • Output gap (% of potential GDP)

*

In Romania, a “quasi-permanent pro-cyclical fiscal policy” has been adopted over the last 20 years, according to the study mentioned, “Aspects regarding the fiscal-budgetary policy – economic growth relationship”.

*

  • Quasi-permanent pro-cyclical fiscal policy

*

Anti-cyclical policy, negative output gap, positive fiscal primary impulse      Pro-cyclical policy, positive output gap, positive fiscal primary impulse   Pro-cyclical policy, negative output gap, negative fiscal primary impulse            Anti-cyclical policy, positive output gap, negative fiscal primary impulse

Anti-cyclical fiscal policy stimulates the economic growth and pro-cyclical fiscal policy inhibits long-term economic growth, especially in countries with low financial intermediation,” says Ionut Dumitru.

Revenge of real economy to come

“Romania has a high budget deficit today, accompanied by a (significant) increase in inflation and an increase in the external deficit (twin deficits),” said Ionut Dumitru.

The actual budget deficit (ESA 2010) was for two years at the maximum threshold of the EU Treaty and will continue to be 3% over the next two years, and the structural budget deficit (3% of GDP in 2016) increased to 4.3% last year and will deepen to 5.2% this year and to 5.8% next year, according to the estimates of the economist mentioned

*

  • Tax revenues are at historically minimum levels and very low at the European level
  • Tac revenue share of GDP

*

A budget deficit of 3% of GDP is far too high for the economic cycle that we are in and makes us vulnerable (by exhausting the fiscal space) to a future downward phase of the economic cycle,” the study said.

Besides, the structure of budget revenues has become more unfriendly over the last years to the long-term economic growth.

And the Romanian Government’s tax revenues are the lowest as a share of GDP in the European Union, except for Ireland.

Mergeți în homepage ›

Publicat la data de 23.4.2018

Lăsați un comentariu


NEWS

Mugur Isarescu: "Ordinance weird thing" reduces monetary policy efficiency, which will not help Government

The National Bank of Romania (BNR) will convoke the National Committee for Macro-prudential Supervision, where the Ministry of Finance will be required to clarify the… Mai mult

World Bank lowered prospects on Romania's economic growth for 2019 and 2020

  Romania's economy will record an advance of 3.5% in 2019 and 3.1% in 2020, down one percentage point from June 2018 forecast, according to… Mai mult

State is borrowing at increasingly higher costs - government bond yield reached 5.33% per year

The benchmark government bond yield jumped above the 5% threshold on Thursday. The Ministry of Public Finance (MFP) attracted RON 300 million from banks on… Mai mult

Iasi - Tg.Mures highway disappeared from Large Infrastructure Operational Programme 2021-2027

The Ministry of European Funds has taken out Iasi-Tg. Mures highway project from the Large Infrastructure Operational Programme 2021-2027 and the Ministry of Transport already… Mai mult

Senate postpones discussions on DNA’s request on waiving immunity of Calin Popescu Tariceanu until February 2019

The Senate has decided that it will put to the vote the decision to waive Calin Popescu Tariceanu's immunity only in the spring session, that… Mai mult

Implementation of 5G technology, a multiplication effect in economy of EUR 4.7 billion - announces Sorin Grindeanu (ANCOM)

The National Authority for Management and Regulation in Communications (ANCOM) launched on Wednesday the National Strategy for the Implementation of 5G Technologies in Romania for… Mai mult

FIC: Amendments on Criminal Codes expose business environment to abuses from civil servants

Some of the amendments to the criminal codes will generate mistrust regarding Romanian state's ability to ensure the legality, stability and predictability of business relationships… Mai mult

European Semester / European Commission asks Romania to correct its medium-term structural deficit by 1% of GDP

Minister Eugen Teodorovici is pressured by the EU to reduce the budget deficit After finding that the Government has done nothing to adjust the deviation… Mai mult

Sovereign Fund gets legal base. Details announced by Minister Teodorovici

The Government adopted on Thursday the ordinance that provides for the general framework for the establishment of a Sovereign Fund. Later, after new talks with… Mai mult

Ford is looking for 1,700 employees to produce EcoSport SUV model

The representatives of Ford Craiova met on Wednesday with mayors of 30 localities from Dolj county in order to stimulate the attraction of 1,700 new… Mai mult

Development strategy / Government squeezes even investment money from its own companies: EUR 120 million from only two entities in energy field

Nuclearelectrica (SNN) and Romgaz (SNG) have calculated the additional dividends to be paid to the state after the Ministry of Finance (MFP) sent to the… Mai mult

DNA, officially: Senate President is suspected of having received a USD 800,000 bribe. Case file opened at a request from Austrian judicial authorities

The case file in which the DNA requested the waiving of the Senate President’s immunity was opened at the request of Austrian judicial authorities and… Mai mult

Illegal state aid / European Commission demands Romania to recover EUR 60 million from CE Hunedoara

Romania has to recover illegal state aid worth EUR 60 million granted to Compexul Energetic Hunedoara, announced the European Commission with a statement released on… Mai mult

Ministry of Finance planned loans of RON 4.74 billion in November. Costs are increasing

The Ministry of Public Finance (MFP) intends to borrow in November RON 4.74 billion, 1.4% more than in the previous month, according to the Ministry.… Mai mult