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

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.