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http://dx.doi.org/10.13106/jafeb.2021.vol8.no1.113

The Fiscal Policy Instruments and the Economic Prosperity in Jordan  

ALZYADAT, Jumah A. (Department of Finance and Banking, College of Business Administration, Dar Aluloom University)
AL-NSOUR, Iyad A. (Department of Advertising and Marketing Communication, Imam Mohammad Ibn Saud Islamic University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.1, 2021 , pp. 113-122 More about this Journal
Abstract
This study aims to investigate the effects of fiscal policy instruments on economic growth in Jordan using annual data from 1970 to 2019, by applying the VAR model (Vector Auto regression) and the Vector Error Correction Model (VECM). The study also examines the dynamic relationship among economic variables over time using the Granger casualty test, Impulse Response Function, and Variance Decomposition. The results show that not only the public expenditures have a positive effect on economic growth in Jordan, but also the tax revenues positively affect the economic growth in the short-run, and this is because of using the tax revenues to finance the government activities in Jordan. This effect becomes negative in the long run, and this is explained because the tax seems a source of distortions in the economy, The extreme taxes may cause huge distortions in the economy, and these distortions destroys the purchasing power, the aggregate demand, and supply. More governmental dependence on tax revenues is the main source of tax evasion and less efficiency. The effect of taxation will curb any prosperity in the economy. Therefore, the government should estimate the fair tax rates to generate sufficient revenues to finance the public expenditure required to enhance economic prosperity.
Keywords
Fiscal Policy; Public Expenditure; Tax Revenues; Economic Prosperity; Jordan;
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