Estimating The Cyclically Adjusted Budget Balance For The Romanian Economy. A Robust Approach

by Altar, Moisa & Necula, Ciprian & Bobeica, Gabriel
Published in Romanian Journal of Economic Forecasting
, 2010, volume 13 issue 2, 79-9

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This paper provides estimates for the structural fiscal balance for the Romanian economy over the period 1998-2008. The calculation of the structural fiscal balance is useful, since it provides a clear picture of the fiscal stance of the economy and it is essential in the context of a medium term fiscal framework. In order to ensure the robustness of the estimation, we employed two methodologies for the computation of the elasticities of various categories of government revenues and expenditures with respect to the output gap. The two approaches issued similar results, the overall average budget sensitivity being equal to 0.285 and 0.290, respectively. The amplitude of the cyclical budget balance is around 1% of GDP. After constant improvement, the structural balance worsened in 2008, due mainly to the current crisis.

Keywords: fiscal policy, structural fiscal balance, cyclical budget balance, business cycle, tax elasticity
JEL Classification:
E62, H30, H60