SIMULATING THE IMPACT OF FISCAL POLICY ON THE ECONOMY

More literature is now focusing on the impact of internal and external shocks on the macroeconomic variable at national and regional level. Some of this paper highlighted the impact of fiscal measure on macroeconomic variable in order to sustain the economic recovery and to mitigate the negative effects of the international crisis. Following the Fatas and Mihov (2001) works we applied a three dimension VAR model in order to study the impact of fiscal measures taken in Romania on the main macroeconomic indicators, namely gross domestic product. Our result show that increasing government spending has immediate negative effect on gross domestic product per capita and the increase in net taxes (taxes less interest income and transfers) has a prolonged negative effect on about seven quarters of gross domestic product, which explains the delayed resumption of growth in Romania