Author(s): Ruba Nimer Abu Shihab
Budget deficit has a crucial impact on Jordanian’s economic growth. This study applies Granger Causality Test, and Vector Error Correction model (VECM) to analyze Jordanian government budget during the period (1990-2018) by investigating the development of that budget deficit and the factors affecting it. Then, the researcher will use an econometrics model to measure and study the impact of the budget deficit on the economic growth in Jordan. For this purpose, both will be applied. Results reveal that there are several factors lead to an increase of the government’s expenditures, such as different forms of military expenses, and to not keeping up with revenues to growth in expenditures for several reasons including, tax evasion, financial and administrative corruption, the incapability of collecting government’s funds from different agencies that are bound to repayments, the increase of total governmental demands with the reduction of domestic product and tending to exporting, which negatively affect trade equilibrium and the budget of the government, one other factor is long-term loans that carry interests that lead to draining the country’s economic capabilities. Moreover, the study finds that government budget deficit has no effect on economic growth. Also, there is a positive effect by economic growth on the Government budget deficit. The study model contains cointegration relationship among the variables, so VECM can be applied. The results show the error term in economic growth equation is not significant, meaning that economic growth in Jordan in the longer-term does not response to changes in Government budget deficit.