The Impact of Political Stability on Budget Deficit in Jordan

Abstract

  This study aimed to investigate the impact of political stability on Jordan's public budget deficit, as well as the impact of both gross domestic product, inflation, and population growth on Jordan's public budget deficit. To achieve this goal two methodologies, depend on descriptive and econometric analysis are used. Several diagnostic tests, such as the unit root for stationarity, and cointegration test, were utilized. Based on the results of these tests, an autoregressive model (VAR) model is used.

   The result showed that the public budget deficit was influenced negatively by political stability in Jordan, as during the second and third periods the amount of forecast error in the public budget deficit due to political stability increased from 7.40% to 15.09% respectively. Additionally, the political stability explained about 15.73% of the forecasting error of public budget deficit which refer to the random errors in the eighth period. This explanatory power increased to 15.99% in the tenth period. This showed that political stability affected public budget deficits over time. Finally, the results of the impulse response function also indicated that a one standard deviation shock of political stability adversely affected the public budget deficit over the period of time.