A SIMPLE ASSESSMENT OF FISCAL SUSTAINABILITY FOR THE ROMANIAN ECONOMY

The financial crisis has seriously impacted the economies around the world, emerging and developed alike. With interest rates at historical low levels, constrained in many cases by the zero lower bound, the emphasis is put on fiscal policy to restore the economies on the path of sustainable growth. This paper attempts to shed light on the issue of fiscal sustainability of the Romanian economy, by checking if the intertemporal fiscal constraint of the government is respected. According to the constraint, the current value of debt equals the sum of the discounted values of future government surpluses, which means that the government is not financing itself through a Ponzi scheme. I build on the econometric approach used in papers such as Hamilton and Flavin (1986), Hakkio and Rush (1991), Quintos (1995), Santos Bravo and Silvestre (2002), Bohn (2007). More specifically, I focus on the time series properties of government debt, revenue and expenditure, determining: i) the order of integration for the government debt series; ii) whether or not government revenue and expenditure are cointegrated. Thus I am able to evaluate the strength of the fiscal position of the Romanian economy and to see the impact of the financial crisis on this position.