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The Impact of Political Instability on the Budget Deficit: Evidence from the MENA Region

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  • Gouasmi, zeineb
  • El Ferktaji, riadh

Abstract

The revolutions in the MENA region countries were experienced as a negative economic shock. This led to popular demands and, at the same time, a worsening of public finances in a climate of political instability. It is therefore relevant to address the question: Is the reduction of the budget deficit dependent on explanatory political variables such as democracy and political stability? In this article, we examined the relationship between the budget deficit and political instability/democracy while using other macroeconomic control variables, such as GDP growth, the consumer price index, and oil prices. This relationship was estimated for a sample of MENA region countries using a dynamic panel data econometric model over the period 2008-2019. The results of this article show that political instability and democracy have a significant impact on the budget deficit in the selected group of MENA region countries. Specifically, the model's estimation found that the democratic political regime positively impacts the budget balance.

Suggested Citation

  • Gouasmi, zeineb & El Ferktaji, riadh, 2025. "The Impact of Political Instability on the Budget Deficit: Evidence from the MENA Region," MPRA Paper 127249, University Library of Munich, Germany, revised Jul 2025.
    • Handle: RePEc:pra:mprapa:127249
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    References listed on IDEAS

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    1. Bougharriou, Nouha & Benayed, Walid & Gabsi, Foued Badr, 2022. "Democratic transition and fiscal policy in the Arab world," Economic Systems, Elsevier, vol. 46(2).
    2. Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 1-31, March.
    3. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
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    Keywords

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    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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