A Discussion Regarding the Armey Model Validity for Romania

Author:Alina Cristina Nuta - Florian Nuta
Position:Senior Lecturer, PhD, 'Danubius' University of Galati, Faculty of Economic Sciences, Romania - Senior Lecturer, PhD, 'Danubius' University of Galati, Faculty of Economic Sciences, Romania
Pages:173-180
SUMMARY

In this paper we analyze whether the Romanian economic context confirms the Armey model, and present the relationship between public spending and economic growth that may offer a suitable basis for decision makers. The analysis is based on quarterly data regarding public spending and economic growth in Romania. The analytic results did not confirm the premises related to the Armey Curve for the... (see full summary)

 
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Performance and Risks in the European Economy
173
A Discussion Regarding the Armey Model Validity for Romania
Alina Cristina Nu
1, Florian Marcel Nu2
Abstract: In this paper we anal yze whether the Romanian economic context confirms the Armey model, and
present the relationship between public spending and economic growth that may offer a suitable basis for
decision makers. The analysis is based on quarterly data regarding p ublic spending and economic growth in
Romania. The analytic results did not confirm the premises related to the Armey Curve for the Romanian
context during 1990-2011. The time interval is marked by unpredictable phenomena such as the transition
from the state economy to the market economy and the world financial crisis, both of which alter the results.
The fact determines us to develop a new model that describes better the connections and the period
characteristics.
Keywords: Armey curve; laffer curve; fiscal policy; Romania
1. Introduction
Many researches on determinants of economic growth presents results demonstrating that a high level
of public expenditure affects economic growth showing that between the level of public expenditure
and growth develops a relationship of non-linear regression. This relationship is possible due to the
fact that a high level of public expenditure over the considered optimal (and economic literature
distinguishes several levels as being optimal, according to the countries that has done the analysis,
depending on the period analyzed (giving even different levels for the same country, for analysis that
took into account different periods of time), or depending on which indicators were calculated to
determine the optimum point). For example, Barro (Barro, 1990) identified an optimum level of the
public sector, when its marginal product equals 1 (the so-called rule of Barro) and, based on empirical
data represented a U shape curve returned, which shows the relationship between growth rate and the
level of public expenditure as a percentage in GDP.
Our work, building on previous research empirical studies published by other authors, has a new
scientific path, analyzing the Armey model compatibility with Romanian economy, the economy of a
country that over the period considered followed the course of the transition from an centralized
economy to one of the market, and, after he has earned the status of market economy has had as its
objective the integration in the European Union.
The specific conditions of the economic crisis that the country just went through it are not forgotten,
because they can influence the results of the study. During this stage particular structural and level
changes were imposed in terms of fiscal-budgetary indicators used in this study, changes that can
inflict interpretations and uncertainty upon our analysis results. Another new element, in addition to
1 Senior Lecturer, P hD, “Danubius” University of Galati, Faculty of Economic Sciences, Romania, Address: 3 Galati Blvd,
800654 Galati, Romania, Tel.: +40372361102, Fax: +40372361290, E-mail: alinanuta@univ-danubius.ro.
2 Senior Lecturer, P hD, “Danubius” University of Galati, Faculty of Economic Sciences, Romania, Address: 3 Galati Blvd,
800654 Galati, Romania, Tel.: +40372361102, Fax: +40372361290, Corresponding author: floriann@univ-danubius.ro.

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