Could the Recession have Been Shortened in Romania after the 2009 Crisis? A Short Answer Given by Fiscal Multipliers during Recessions


  •  Radu Soviani    

Abstract

The experience of the large fiscal adjustments shows their efficiency depends mainly on how much is to be adjusted, the factors that contributed to the fiscal disequilibrium and their structure (discretionary or imposed by the economic environment), the size and the quality of the adjustment measures and the pace of reaction of the fiscal authorities. In this paper we analyze the size of the fiscal adjustment of the Romanian economy during the recession of 2009-2012 relatively to previous large fiscal adjustments in the European Union before the Great Recession. We determine if the measures that were taken in Romania were properly sized by using a simple method for determining the fiscal multipliers for the Romanian economy, based on recent findings of the international literature. Our findings show that the fiscal adjustment made in Romania between 2009-2012 was the fastest in the European Union with the highest yearly pace (we use as reference the adjustments prior to the Great Recession) and that the Romanian recession could have been shortened by at least one year. Our findings provide an argument that the austerity measures might cure an economy but if their size is improper, it might lower their long term potential.



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