The Estimation of the Structural Budgetary Deficit for Romania in the Context of Accession to the Euro Zone

Abstract

Romania is preparing to enter a superior stage of integration - the admission in the euro zone. In this context, the study estimates the structural budgetary deficit, considering it as being one of the most relevant indicators to evaluate the performance of the fiscal management, as well as the degree to which the Romanian fiscal policy is ready to act as a single instrument capable of stabilizing the national economy after the Euro zone admission. The paper is structured as follows: (i) estimating the potential GDP and the output gap by the production function approach and by using the Hodrick-Prescott filter; (ii) estimating the budgetary cyclical deficit based on the sensitivity of the deficit (using the elasticities of government revenues and expenditures in relation to GDP) and the level of the output gap and, afterwards, the structural budgetary component; (iii) conclusions and recommendations.

Keywords

• Potential GDP
• output gap
• elasticities of revenues and expenditures in relation with GDP
• the production function approach
• Hodrick-Prescott filter
• cyclical budgetary deficit
• structural budgetary deficit.