Open AccessThe impact of budgetary and political institutions on fiscal cyclicality: Evidence from Egypt
Author(s) -
Sarah El-Khishin,
Mohamed Zaky
Publication year - 2021
Publication title -
journal of governance and regulation
Language(s) - English
Resource type - Journals
eISSN - 2306-6784
pISSN - 2220-9352
DOI - 10.22495/jgrv10i3art6
Subject(s) - economics , parliament , fiscal policy , politics , revenue , business cycle , government spending , government revenue , capital expenditure , macroeconomics , economic policy , government (linguistics) , monetary economics , finance , political science , market economy , linguistics , philosophy , welfare , law
We investigate the cyclicality of fiscal policy in Egypt during the period of 1976–2019 with a focus on how budgetary and political institutions affect fiscal performance during economic cycles. We define new variables for budgetary and political institutions and incorporate them in a vector error correction model (VECM) and impulse response functions (IRFs) analysis. While current and capital spending are proven to behave procyclically, revenues respond countercyclically during business cycles. Poor political and budgetary institutions have a negative impact on the primary deficit in a way that led to procyclical behaviour in fiscal policy in the long run. We recommend reinforcing the Golden Rule and changing the nature of the electoral system to a party-based to strengthen the role of parliament in keeping the government accountable