Fiscal and Income Incentives Trigger Imbalances in a Partly Functional Market Economy

This paper focuses on identifying the micro-and macroeconomic effects of income and tax incentives granted to companies and individuals in Romania from 2013 to 2019. The analysis underscores that fiscal policy easing did not lead to significant headway with firms' economic performance, capitalisation and payment discipline. Moreover, in the absence of a notable increase in domestic supply, substantial fiscal policy easing aimed at households translated into negative developments in the trade and exchange rate equilibrium owing to an unsustainable rise in imports. Romania's current economic state calls for swiftly amending the legislation on commercial companies, bearing in mind that they are substantially undercapitalised relative to legal requirements and show a chronic payment indiscipline (without providing a positive feedback to tax incentives).At the same time, within the amended legal framework, the business behaviour needs to be improved, consistent with the 'rules versus discretion' philosophy prevailing in Northern and Central Europe.