The fiscal policy effects on major macroeconomics indicators: the case of Jordan

Abstract EN

This study analyses the impact of fiscal shocks on major Jordanian’s macroeconomic variables using a quarterly data for the period 2000: q1-2018: q4.

Bayesian vector auto regression model with Minnesota prior is used.

expansionary expenditure shock achieve growth but fails to dampen the debt levels, a crowding out effect observed in the economy in line with the Keynesian thoughts.

revenue shocks succeed to dampen the debt levels but fails to generate growth.

regard to fiscal shocks we trace the response of private consumption, private investment, inflation, GDP, and Debt.

fiscal expansionary shocks in expenditure in growth and raise the GDP while fiscal expansionary shocks in revenue reduce GDP but improve the debt burden.

expansionary expenditure shock has a small inflationary impact while revenue shock has a negligible effect in the medium run.

revenue shocks have a negative impact on private investment, also expenditure shock have the same impact through the crowding out effect.

private consumption raised due to expenditure shocks with the contrary effect due to revenue shocks.

debt accumulates in the case of expenditure shocks while a decline observed in response to revenue shock which support that revenue shock is preferred to revitalize the economy in the long run.