Public deficit, public debt, corruption and economic freedom: some empirical evidence from Romania

The institutional framework integrates factors that have important effects on fiscal issues, especially, in a transitional economy. This paper uses data for Romania spanning the period 2000-2011 to investigate the re lationship between the legal structure, the public deficit and the public debt. The results confirm the importance of the group of institutional variables. The presence of bi-directional causality between the public deficit and all institutional variables is validated. The results are extremely important for regulators and policy makers, since the different sources of inefficiency related to the institutional variables require similarly multi-faceted solutions that take into account local circumstances and cultural contexts.