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Responsible Governance and the Sustainability of Populist Public Policies. The Implications of Wage-Led Growth Strategy in Romania

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  • Alexandru Avram

    (Department of Finance, Faculty of Economics and Business Administration, West University of Timișoara, 16 Pestalozzi Street, 300115 Timisoara, Romania)

  • Flavia Maria Barna

    (Department of Finance, Faculty of Economics and Business Administration, West University of Timișoara, 16 Pestalozzi Street, 300115 Timisoara, Romania)

  • Miruna Lucia Năchescu

    (Department of Finance, Faculty of Economics and Business Administration, West University of Timișoara, 16 Pestalozzi Street, 300115 Timisoara, Romania)

  • Costin Daniel Avram

    (Department of Economics, Accounting and International Affairs, University of Craiova, 13, A. I. Cuza Street, 200585 Craiova, Romania)

  • Roxana Loredana Avram

    (Postgraduate School of Economics and Business Administration, West University of Timișoara, 16 Pestalozzi Street, 300115 Timisoara, Romania)

Abstract

In the present paper, we focus on the macroeconomic implications of the populist public policies and in particular on the effects of wage led growth strategy, which started to be applied in Romania from January 2017. Such a study is important as a practical example of applying this particular wage related public policy and sets the premises for analyzing its sustainability and its macroeconomic implications and costs. For analyzing the implications of the wage-led growth strategy upon the sustainability of macroeconomic variables, we have used an unrestricted VAR (vector auto regressive) and compared the effect of the impulse response functions with the recent evolutions of the Romanian economy. Thus, we have observed the effect of the wage led growth strategy, by using the average wage, trade deficit, number of employees, inflation rate, labor productivity, and minimum wage as variables. Our study shows that the wage-led growth policy had a strong positive impact on the number of employees and on inflation, increasing it, but a negative impact on productivity. In addition, we have seen a strong positive impact on increasing the trade deficit. These particular evolutions have left the Romanian economy with almost no fiscal and monetary space of maneuver in the face of the exogenous shock produced by the pandemic.

Suggested Citation

  • Alexandru Avram & Flavia Maria Barna & Miruna Lucia Năchescu & Costin Daniel Avram & Roxana Loredana Avram, 2020. "Responsible Governance and the Sustainability of Populist Public Policies. The Implications of Wage-Led Growth Strategy in Romania," Sustainability, MDPI, vol. 12(7), pages 1-21, April.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:7:p:2975-:d:342890
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