Government Expenditures Determinants: An Empirical Study on Palestine

Abstract

This study aims at empirically evaluating the relative significance of the public spending determinants in Palestine. To do so, time series data covering the period 2005-2020 is used. To investigate the nature of the relationship between Palestinian public spending and its determinants, a specific methodology is employed and Multiple linear regression (MLR) model is used. The empirical results show that the following explanatory variables are key determinants of public spending in Palestine: government revenues, foreign aid, and unemployment, respectively. Each of these determinates has the expected sign consistent with economic theory. Additionally, the determinants are statistically significant at 5% level of significance. This study suggests that the Palestinian Authority should diversify the revenue base of the country and rationalize public consumption spending by encouraging citizens to invest and making them aware of the benefits of directing savings towards investment. A further study needs to be carried out and include some other relevant variables that may explain more variation in government spending in Palestine.