Long-Run Implications of Public Debt on Economic Growth

Many European countries faced with large fiscal deficits have adopted great plans of austerity to limit their public debt. In Romania, despite many measures to reduce public sector wages and some social allowances, in the 2009 and 2010 has been recorded only a small contraction of governmental expenditure but a fast growing public debt. However, the main effects of the austerity measures have materialized in a significant reduction in domestic demand and an important reduction of gross domestic product. Also, despite a substantial reduction of supply, the unemployment rate has not exceeded 8% in Romania. This paper aims to analyze how much the policies restricting budget deficit and public debt in Romania delayed the resumption of economic growth. Even the euro adoption perspective impose a stricter management of Romanian budgetary policies and other nominal convergence criteria, the hard core of economic policies must be the reinventing a new path to sustainable growth. It is necessary to conclude a new financing agreement with IMF for the next two years? We also intend to test the tolerance degree of the Romanian economy to public debt expansion (according to Reinhart&Rogoff model, 2010) as reflected in the growth rate of real gross domestic product.Convergence; budget deficit; public debt; GDP; monetary union