THE MACROECONOMIC EFFECTS OF FISCAL POLICY. A BVAR APPROACH

The interest on fiscal policy had been recently renewed due to the economic recession and given the limited scope of monetary policy to provide additional stimulus for the economy. Also the empirical studies on fiscal policy have not reached a consensus about the effects of fiscal shocks on macroeconomic variable This study seeks to analyze the effects of government expenditure shock and tax revenue shock on economic activity by applying a BVAR methodology. The advantage of the Bayesian technique is that it allows prior information to be imposed on the system, in addition to that provided by the data. This paper provides a detailed evaluation of the effects of fiscal policy in Romania, but also for the Eastern European Emerging Markets. In the estimation are used quarterly data for five variables: GDP, inflation, interest rate, government expenditure and tax revenues. The main results show that the fiscal policy has a small effect on the variable considered.