Long-Run Implications of Public Debt on Economic Growth

Many European countries faced with large fiscal deficits have adopted great plans ofausterity to limit their public debt. In Romania, despite many measures to reduce public sector wagesand some social allowances, in the 2009 and 2010 has been recorded only a small contraction ofgovernmental expenditure but a fast growing public debt. However, the main effects of the austeritymeasures have materialized in a significant reduction in domestic demand and an important reductionof gross domestic product. Also, despite a substantial reduction of supply, the unemployment rate hasnot exceeded 8% in Romania. This paper aims to analyze how much the policies restricting budgetdeficit and public debt in Romania delayed the resumption of economic growth. Even the euroadoption perspective impose a stricter management of Romanian budgetary policies and othernominal convergence criteria, the hard core of economic policies must be the reinventing a new pathto sustainable growth. It is necessary to conclude a new financing agreement with IMF for the nexttwo years? We also intend to test the tolerance degree of the Romanian economy to public debtexpansion (according to Reinhart&Rogoff model, 2010) as reflected in the growth rate of real grossdomestic product.