Macroeconomic Factors that Generate Fiscal Risk in Romania

Adriana Elena Porumboiu and Petre Brezeanu ()

Economic Studies journal, 2023, issue 8, 35-56

Abstract: Fiscal risk, under the form of unforeseen increases in public expenditures, can be quantified by the (increasing) government debt level. This study aims to identify the interdependencies between government debt, the number of people active on the labour market (labour force), the level of the average salary in the economy, the harmonized index of consumer prices and the RON-EURO exchange rate. The main objective is thus to assess which ones of the last four variables influence in the short and long run the government debt and constitute a fiscal risk. The analysis is focused on Romania, using quarterly data starting from the 1st quarter of the year 2000 and up to the 2nd quarter of 2021, the applied methodology being VECM. The most important conclusions show that changes in the level of the average salary and active population are significant and influence the government debt both in the short and long run and they can constitute in this regard fiscal risk determinants, while HICP as an inflation indicator or HICP do not exert significant impact on government debt either on short term or long term. While the average salary constantly exerts a significant and positive influence on the government debt, the change in the active population leads to a change of the same sign in the government debt in the short term, but of the opposite sign in the long term. The main recommendation for the government that derives from the results of the study is to implement measures to increase the active population and increase the degree of employment, in order to decrease the pressure on the government debt and fiscal risks, both in the short term and long-term. This is in line with the results of numerous studies that show that the decrease in the active population, combined with the rise in retired people, lead to increasing indebtedness.

JEL-codes: H50 H63 J01 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:bas:econst:y:2023:i:8:p:35-56

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