THE NEXUS BETWEEN FISCAL POLICY AND ECONOMIC GROWTH FOR JORDAN: FRESH INSIGHTS FROM MAKI COINTEGRATION

OMAR MOHAMMAD AL-KASASBEH

doi:10.22159/ijbm.2022.v10i1.44401

Authors

OMAR MOHAMMAD AL-KASASBEH Faculty of Business and Management Unisza University, Jordan.

DOI:

https://doi.org/10.22159/ijbm.2022.v10i1.44401

Keywords:

Government expenditure, Public debt, Structural break, Taxes

Abstract

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.

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