Budget Deficit and External Debt in Jordan: Causality and Co-Integration Analysis

Abstract

This paper examines the relationship between budget deficit and external public debt in Jordan during 1992-2012. After reviewing major fiscal and monetary developments, we test for stationarity and co-integration of budget deficit and external debt. In addition, we test for the existence and direction of causality between debt and deficit. The findings of this paper provide evidence of neutrality hypotheses suggesting that there is no causality running from budget deficit to external debt and there is no causality running the other way round. Co-integration test supports the absence of long-run relationship. Empirical findings also suggest that fiscal decision makers may disregard external debt when setting budget constrains including taxes and non-interest spending. They also imply that budget constraints must rely on more important factors other than external debt when drawing fiscal policies. These factors may include good governance, tax reforms and lowering government spending on certain economic activities that have little significance on total output.

How can value added tax compliance be incentivized? An experimental examination of trust in government and tax compliance costs

“…Since then, the government has exerted efforts to create reforms toward forming an efficient system, increased VAT revenue and mitigated dependence on non-VAT revenues (Alkhdour, 2011). Jordan is blessed with very little economic resource and has been experiences deficits in budgets and as such, VAT has become a crucial financial resource for the entire social and economic initiatives (Shahateet et al, 2014;Lutfi et al, 2021;Alshirah et al, 2021cAlshirah et al, , 2022aSlemrod, 2019;Shahin, 1996).…”

The Effect of Tax Moral on Sales Tax Compliance among Jordanian SME

“…The role of taxes in the country's development has been emphasized after the sharp economic crisis in 1988, and ever since the adoption of the first International Monetary Fund (IMF) economic adjustment program in 1989, the Jordanian government has tried its best to make reforms when it comes to tax system efficiency, increased tax revenue, and reduced dependence on nontax revenue (Alkhdour, 2011). Jordan has very limited economic resources, experiencing a chronic budget deficit, and, hence, tax is a very important resource for financing all social and economics projects (Shahateet et al, 2014).…”