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Analyzing The Impact Of Fiscal Policy Efficacy On Inflation Trends In Jordan Between 1995 And 2022

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  • Khaled Abdalla Moh’d AL-TAMIMI

Abstract

This study investigates the effectiveness of fiscal policy measures in Jordan during the period from 1995 to 2022 and their influence on inflationary trends. Using the Autoregressive Distributed Lag (ARDL) approach, the research examines the relationship between various fiscal policy variables, including Economic Growth Rate (GRi), Percentage of Total Government Expenditure of GDP (Gi), General Tax Rate of GDP (Ti), Percentage of Total Public Debt of GDP (Di), Government Investment Spending Ratio of GDP (GIi), Government Consumer Spending Ratio of GDP (GCi), Proportion of Income Taxes in Tax Revenues (TIni), Percentage of Customs Fees in Tax Revenues (TGXi), Proportion of Taxes on Goods and Services out of Tax Revenue (TGSi), and Ratio of Taxes on Foreign Trade to Tax Revenues (TTRi), and inflation levels. Data for this study are sourced from annual reports of the Central Bank of Jordan, the International Monetary Fund, and the World Bank. The study spans the years from 1995 to 2022 and expresses the data in logarithmic form. The results of unit root tests indicate that most variables exhibit integration of order 1 (I(1)), requiring differencing to achieve stationarity. Notably, Taxes on Income and the Inflation Rate are integrated of order 0 (I(0)), indicating inherent stationarity. Using the Error Correction Model (ECM), the study reveals a long-term relationship between inflation and fiscal policy variables. The ARDL model identifies Taxes on Income, Taxes on Foreign Trade, Economic Growth Rate, Taxes on Goods and Services, and lagged Inflation Rate as significant determinants impacting inflation, capturing both immediate and lasting effects. Diagnostic tests confirm the model's robustness by revealing no issues of serial correlation or heteroscedasticity. The analysis explains approximately 60.4% of the variations in inflation in Jordan from 1995 to 2022, emphasizing the significant explanatory power of fiscal policy variables. In conclusion, this study provides valuable insights into the dynamics of fiscal policy and inflation in Jordan, serving as a foundation for informed policymaking.

Suggested Citation

  • Khaled Abdalla Moh’d AL-TAMIMI, 2024. "Analyzing The Impact Of Fiscal Policy Efficacy On Inflation Trends In Jordan Between 1995 And 2022," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 24(2), pages 145-170.
    • Handle: RePEc:eaa:aeinde:v:24:y:2024:i:2_9
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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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