The Effect of Fiscal Policy on the Economic Growth: An Analytical Study, Evidence from Jordan (2005-2020)

Abstract

The Jordanian economy faces a set of economic challenges, represented by the rise in unemployment rates, the decline in the rates of gross domestic product, and the rise in the general level of prices, which are the most important indicators of economic development. Jordan is considered one of the developing countries with limited resources, and it depends greatly on tax revenues, grants, and foreign subsidies to cover public expenditures. Because of the importance of fiscal policy to correct the economic path, and Jordan's need for an effective fiscal policy to achieve acceptable economic growth and find successful solutions to address poverty, unemployment, declining investment, adjusting public spending levels, and setting tax rates, this study aimed to examine the impact of fiscal policy tools (Tax Revenue, Domestic Revenue, External Debt, Foreign Grants and Total expenditure), on indicators of economic growth in Jordan (GDP, Inflation, and Unemployment), during the period 2005-2020. The study followed the analytical and descriptive approach using statistical programs through a multiple regression model based on historical quarterly data obtained from the statistical database of the Central Bank of Jordan and the Jordanian Department of Statistics during the study period. The most important findings of the analytical results of the study's hypotheses are a statistically significant effect of fiscal policy tools on GDP, inflation, and unemployment with explanatory power (94%, 97%, and 86.6%). Consecutively. This study contributed to finding a model capable of explaining the impact of public financial policy tools on the most important indicators of development in Jordan, by taking into account most of the financial policy tools, so it is expected that the results of this study will contribute to improving the quality of fiscal policy decisions in Jordan.