Keynes versus Laffer or Misleading Perspectives against Normal Evolution

Delia Diaconaşu, Ion Pohoaţă () and Oana-Ramona Socoliuc ()
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Ion Pohoaţă: Department of Economics and International Relations, Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iasi
Oana-Ramona Socoliuc: Department of Economics and International Relations, Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iasi

Journal for Economic Forecasting, 2019, issue 3, 132-147

Abstract: Having as theoretical support the innovative and opposed aspects of the Keynesian and the supply-side doctrines, this article aims to analyze the effects of fiscal policy, its strength and duration on economic growth. Using a SVEC framework on the example of Romania, we find that a hike in government expenditure was not too efficient in promoting economic development during the 2000-2018 period. The results show that the government spending shocks have a quite small and short-lived effect on GDP, do not boost consumption and lead to important “crowding-out” effects. In addition, our findings indicate that an increased government debt dilutes the efficiency of fiscal policy. We find quite low impact and cumulative government spending multipliers.

Keywords: fiscal policy; economic growth; structural vector error correction model; crisis; Romania (search for similar items in EconPapers)
JEL-codes: E12 E62 H50 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2019:i:3:p:132-147

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