Measurements of Fiscal Imbalances in Romania

AuthorElena Cigu
PositionAlexandru Ioan Cuza' University of Iasi, Iasi, Romania
European Integration - Realities and Perspectives. Proceedings 2020
Measurements of Fiscal Imbalances in Romania
Elena Cigu1
Abstract: Subnational government inequalities are always a challenge for the countries all over the world, in
particular large ones, even are unitary states or federations. Romania has a unitary system, but decentralization
process and different level o f economic development of individual territorial units determine specific problems
resulting in fiscal gaps, both horizontal and vertical. The paper focuses in the first part on the review of the
literature regarding the measurement of the vertical and horizontal fiscal imbalances, and the second part will
measure fiscal imbalances in Romania counties based on methodologies identified in the first part. Despite
being a unitary country, Romania presents an in creasing of horizontal fiscal imbalance and high vertical fiscal
imbalances for 28 counties of 42. The paper can be considered a useful viewpoint in understanding the state of
fiscal imbalances in Romania.
Keywords: vertical fiscal imbalance; horizontal fiscal imbalance; fiscal gap; subnational government
inequalities; transfers
1. Introduction
The decentralization of public finances as a complex system determines the decentralization of the tax
authority and to create a financial equalization system because of different level of economic
development of individual administrative-territorial units. In this context, the problem of public
income redistribution emerges, both horizontal and vertical (Kowalik, 2016).
The goal of this paper is twofold, theoretical and empirical. Firstly, at theoretical level, we highlight
the state of knowledge of the literature regarding the measures applied for vertical and horizontal
fiscal imbalances. Secondly, assimilating the results of previous studies, I will measure fiscal
imbalances in Romania based on different methodologies and apply it in the case of Romanian
counties over the period of time 2005-2015. We pay particular attention to the methodologies
developed or used by Hunter (1974, 1977), Martinez-Vazquez and Boex (1999, 2001), Shankar and
Shah (2001), Schroeder and Smoke (2003), Bird (1993), Bird and Tarasov (2002, 2004), Cowell
(2011), Li and Xu (2008), and Kowalik (2015, 2016) to measure fiscal imbalances, both horizontal
and vertical. This paper contributes to creating a comprehensive view on fiscal imbalance and
inequalities in Romanian counties and to the best of our knowledge, this is the first study that
measuring fiscal imbalances using the methodologies developed or used in their research by Hunter
(1974, 1977), Martinez-Vazquez and Boex (1999, 2001), Shankar and Shah (2001), Schroeder and
Smoke (2003), Bird and Tarasov (2004) and Kowalik (2016).
The working hypothesis is there are imbalances between Romanian counties, both horizontal and
vertical, having a significant impact on subnational sustainable development.
1 “Alexandru Ioan Cuza” University of Iasi, Iasi, Romania, Address: 11 Carol I Blvd., 700506, Iaşi, România, Tel.: 0232 20
1000, Corresponding author:

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