Hardened Budget Constraints in Romania: An Approach by CGE Modeling |
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Authors: | Rodica Sandu-Loisel |
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Affiliation: | Institute of Economics , Bulgarian Academy of Sciences , 3, Aksakov Str, Sofia, 1040, Bulgaria |
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Abstract: | This study estimates the effects of hardened budget constraints on the Romanian economy and tests a market price-based policy by removing state subsidies. As most subsidies are granted to and through the energy sector, the analysis focuses on energy issues. A general equilibrium approach is used for the empirical application. The results fit the theory and show that removing subsidies contributes to eliminating distortions: energy intensity declines, the Gini coefficient drops and general welfare improves. The main effects of applying a cost recovery policy are the improvement of agents' self-financing capacity and of their investment structure. Surprisingly, production cost falls in all sectors, since cross-subsidies are removed. |
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