2026 Begins with a Lag

This is not an illusion; it pertains to the mechanisms of the economy. The effects of political and fiscal decisions do not play out instantaneously. A significant share of the measures adopted in 2025 lead to a tighter economic framework, raise costs, compress margins, and deepen uncertainty. But their real effects have not yet fully manifested into the economy. They are still working their way through the system. This is because they are not transmitted directly; instead, they are filtered through people’s expectations. And people, more often than not, do not react immediately. Decisions are not made at the moment when the impulse is released, but rather later, when the signal has settled and caution turns into behavior.

This is why 2026 is very likely to be tougher than 2025: not because radically different decisions will be taken in 2026, but because that is when the real costs of decisions already made become visible at scale.

In reality, what appears manageable in the first year becomes constraining in the one that follows. The economy does not function like a digital dashboard, but like a biological system, with lags, inertia, and delayed reactions. In some economies—those with deep market mechanisms, developed financial markets, and credible institutions—effects are transmitted more quickly. In others, with thin markets, limited capital, and unstable rules, transmission is slower and more painful. But nowhere is it instantaneous.

As early as the 1960s, Milton Friedman spoke of long and variable lags: long and variable delays between the moment a fiscal decision is made and the moment its economic impact is actually felt. Later, Robert Lucas, Olivier Blanchard, and David Romer showed that fiscal policy produces effects with delays that depend on the structure of the economy, the depth of financial markets, institutional credibility, and the expectations of economic agents. Regardless of these structural differences, one thing remains constant: the effects do not appear immediately.

In economies with deep market mechanisms, high capitalization, and stable institutions, some adjustments materialise faster and shocks are absorbed more efficiently. Costs are spread more broadly and more evenly. In economies with thin markets, scarce and volatile capital, market "rules" that change perpetually, and limited access to finance, transmission is fragmented and often negatively amplified. Romania is closer to this second type of economy, where restrictive measures adopted in one year reveal their true cost only in the following year.

This is why 2025 benefited from positive inertia: investments decided earlier, contracts signed under a different fiscal regime, consumption supported by savings or credit, and the postponing of difficult decisions. Many of the costs introduced in 2025 have not yet been fully internalized by firms and households. They surface gradually—at refinancing, during contract renegotiations, through price adjustments, and via reduced investment. In 2026, however, the bill comes due.

The literature on procyclical fiscal trends in emerging economies—from Gavin and Perotti to Ilzetzki and Végh—shows that these economies feel the harshest effects of poorly calibrated fiscal consolidations with a delay. The adjustment does not strike immediately, but later, when policy space is already constrained. This is the mechanism that makes 2026 harder than 2025.

At the same time, there is an almost universal political obsession: wealth must be taxed, capital must be “taxed,” and economic success must be morally justified at all times. The problem is not taxation per se, but the confusion between source and outcome. Margaret Thatcher captured this paradox with brutal simplicity: Let the rich get richer. Not as an ideological slogan, but as an economic observation. Money does not fall from the sky. It has to be earned here, on the ground. No one would remember the Good Samaritan if he had only good intentions; he also had money.

This intuition is confirmed by growth theory. The models of Solow, Romer, and Aghion show that capital accumulation—physical, human, and technological—precedes redistribution. If you systematically strike at capital, you do not redistribute more; you redistribute less. Romania has made a structural choice to tax its development potential.

The effect is visible: after years of significant economic growth, the economy does not accelerate—it struggles to breathe. This is precisely what the literature calls post-boom fatigue in a framework of fiscal decapitalization. Growth is consumed, taxed in advance, and fragmented, rather than transformed into a solid foundation for development. This structural fatigue does not fade; it deepens. And in 2026 it becomes more evident than in 2025.

Added to this picture is the structure of indirect taxation. High excise taxes and VAT are not neutral. They favor economies of scale and penalize small capital. Small and medium-sized enterprises, with thin margins and limited access to finance, find themselves unable to compete with overcapitalised corporations in an environment of high indirect taxation. The literature on tax incidence and imperfect competition shows that such taxes entrench dominant positions and thin out the entrepreneurial base.

At one point, I asked an insurance broker whether I could take out political risk insurance. He looked at me in surprise. I can insure myself against fire, floods, or earthquakes. But there is something more devastating than a storm: a systemic risk with no dedicated policy.

Insurance covers random events with a limited time horizon. Politicians’ terms last for four or five years. If terms last for less than the duration of insurance policy, then we should expect such policies to be sold on the markets. If terms last for longer, perhaps they should be classified as force majeure. But, in practice, we do not see this happening. Political risk is not considered force majeure, because it is created by law, deliberately, not accidentally.

What does it mean to interrupt a perfectly functional business because of changes in political parameters? Who bears responsibility for whenever business can no longer operate due to the appointment of local or central administrators on political criteria? Political risk is absent from contracts. However, in reality, it is omnipresent. Loans have been extended without political risk assessment because it was not required. Later, loans are turned into bank provisions. Even financing obtained on the basis of political influence becomes systemic losses. This is how trust in risk assessment mechanisms and in the financial system erodes.

All of these elements converge in 2026. Not simultaneously, not dramatically, but slowly, through accumulation. The literature on adaptive and rational expectations shows that economic agents respond not only to decisions, but also to their credibility. And when the fiscal framework consistently taxes capital, when political risk remains uninsurable, and when indirect taxes suffocate initiative, expectations adjust downward.

2026 will not be a difficult year because “something will happen.” It will be a difficult year because many things have already happened. The economy, unlike politics, does not have quick reflexes. It has a memory. It has scars. And it reveals its wounds with a delay.

Article originally published in The Market for Ideas magazine