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Theoretical and Applied Economics
No. 2 / 2011 (555)

Consequences of the Budget Deficit in the Current Crisis in Romania. Implications on the Labor Market

Bucharest Academy of Economic Studies
Mirela Ionela ACELEANU
Bucharest Academy of Economic Studies

Abstract. In the current economic activity conditions, in which the need of financial resources is usually higher than the existing funds, the elaborations of budgets at any level is one of the primary issues, particularly as regards the principle of budgetary balance.

    Approaches regarding sizing budgets deficits, means of financing and particularly sizing public debt get a series of touches of precise nature for different economies. Actual economic, financial, social and administrative conditions put up a series of problems which impose an extremely serious approach of the potential adverse impact by sizing of budget deficits and public debt over the real possibilities of noninflationary financing.

    In Romania, in the highly complex framework in which the economic activity takes place, in the attempt to show the place held by the budget deficit, a special role is assigned to determine the share of public financial deficit in the consolidated budget revenue and expenditure.

    Currently, knowledge and concern for reducing the budget deficit are still of great importance, especially as Romania is facing great difficulties in economic development.

    Amid deepening structural crisis phenomena, increasing budget deficits financed over a non-inflationary limits comes as an additional factor that contributes to imbalances of the economy. In addition, where budgetary expenditures are targeted to satisfy, primary, the redistribution function and to state subsidies, because of the lack of a real multiplier coefficient, the state budget deficit worsens.

    Influences such as introducing economic disturbance in the mechanisms which cause them to increase budget deficits can be summarized and grouped into two broad categories: economic influences and psychological influences.

    Regarding economic influences, we can say that they act strongly and strictly determined by how meanings used to cover budget deficit. The modalities used are subject to an analysis by direct or indirect influence on the mechanisms that generate economic stability and economic development effort.

    For example, on the short-term, the budget deficit reduces the national saving, leads to decreased supply of market funds, which increases the interest rates. In this context, the volume of investment decreases, the consumption is reduced, affecting the volume of economic activities and employment.

    The psychological influences combined with the economic boost caused by budget deficits act directly on financial markets, leading to falling down the values of capital markets and the depreciation of the currencies sometimes sudden for the national currency. Even if the depreciation of the exchange rate is often a method used to equilibrate the commercial balance, an uncontrolled amplification of budgetary deficits can sometimes lead to monetary depreciation. These, over a certain level, can neutralize the benefits obtained in the external plan by strong worsening of the internal imbalances, mainly through the increased inflationary pressures in the economy.

    So, in current circumstances, when you want to identify and encourage those branches and sub-branches of national economy which can be developed in the global economy, one of the basic decisions regarding the interpretation of economic processes is the adoption of a dynamic and creative concept which considers both requirements to use the fiscal levers in economic development policy and the possibility of modifying the structure of budgetary revenues and expenses.

Keywords: budget deficit; economic and financial crisis; fiscal levels; deficit financing; labor market.

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