Theoretical and Applied Economics
No. 3 / 2026 (648), Autumn
The Impact of Fiscal Policy on Inflation in Romania
Bucharest University of Economic Studies, Romania
Abstract. Inflation has become one of the most important macroeconomic challenges facing Romania in recent years. Although the recent rise in prices was initially triggered by external shocks, including the energy crisis, supply bottlenecks, and geopolitical instability, domestic factors have played a decisive role in sustaining inflationary pressures. Among these domestic factors, fiscal policy occupies a central place. Government spending, taxation, wage and pension policies, subsidies, and the size of the public deficit all influence inflation through multiple channels, including aggregate demand, expectations, price-setting dynamics, and the interaction with monetary policy. Romania is a particularly relevant case because inflation has unfolded in parallel with persistent fiscal deficits, strong consumption-led growth, and repeated warnings from European and international institutions regarding macroeconomic imbalances and the need for fiscal consolidation.
This article examines the impact of fiscal policy on inflation in Romania by combining theoretical discussion with recent macroeconomic evidence. It explains the main transmission mechanisms through which fiscal policy affects prices, analyses Romania’s post-pandemic inflation dynamics, and evaluates the extent to which expansionary fiscal policy has contributed to inflation persistence. The paper argues that, although fiscal policy was not the only cause of inflation in Romania, it significantly amplified domestic inflationary pressures and reduced the speed and effectiveness of disinflation. The article also highlights that monetary policy alone cannot ensure price stability when the fiscal stance remains loose or inconsistent. Consequently, credible and well-designed fiscal consolidation is presented not only as a budgetary necessity, but also as an essential anti-inflation instrument.
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The Impact of Fiscal Policy on Inflation in Romania
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