Open AccessTHE NEXUS BETWEEN FISCAL POLICY AND ECONOMIC GROWTH FOR JORDAN: FRESH INSIGHTS FROM MAKI COINTEGRATION
Author(s) -
OMAR MOHAMMAD AL-KASASBEH
Publication year - 2022
Publication title -
innovare journal of business management
Language(s) - English
Resource type - Journals
ISSN - 2321-6816
DOI - 10.22159/ijbm.2022.v10i1.44401
Subject(s) - cointegration , economics , unit root , structural break , macroeconomics , debt , fiscal policy , unit root test , monetary economics , nexus (standard) , government revenue , real gross domestic product , public finance , econometrics , computer science , embedded system
The current study was carried out to empirically investigate the relationships between government expenditure, taxes, and debt in Jordan, using the annual time series data over the period 1980-2020. Despite the increased awareness of the importance of fiscal policy, Jordan is still seeing a drastic decrease in the volume of growth. Thus, this study was carried out to determine how government expenditure, taxes, and debt affect economic growth. For the empirical analysis, the study adopted Augmented Dicky Fuller, Phillips-Perron unit root tests, Zivot and Andrews and Lumsdaine and Papell unit root tests with structural breaks. It employs recently developed econometric techniques such as Maki cointegration tests allowing for an unknown number of breaks. The results of the cointegration test showed the presence of a cointegration relationship with structural breaks. It was found that the Jordanian crisis that occurred in 1989 harmed economic growth. However, the structural break in 2008 had an affirmative effect on economic growth. According to the study, tax revenues, public deficits, and debt can all be reduced and the economy can thrive if policymakers implement smart fiscal policies that boost gross fixed capital formation.