Fiscal Policy Effectiveness Under Different Debt Regimes: The Case of Egypt

Yacoub Alatrash () and Gani Nurmukhametov
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Yacoub Alatrash: University of Washington
Gani Nurmukhametov: University of Washington

No 1527, Working Papers from Economic Research Forum

Abstract: This paper examines the effectiveness of fiscal policy in Egypt under different debt regimes. In so doing, we evaluate the relationship between expansionary fiscal policy and real economic growth. Two elements of particular interest are the (non)linearity and the impact of domestic debt on macroeconomic variables. Specifically, we search for a threshold effect by applying the Hansen (2000) sample-splitting threshold regression model. We establish with statistical significance that fiscal expenditure leads to greater real GDP in a low-debt regime (81.5% domestic debt-to-GDP threshold) and lower real GDP in a high domestic debt above the threshold. We further explore and test possible theoretical explanation for the findings. The paper concludes with a discussion of policy implications of this research.

Pages: 17
Date: 2021-12-20, Revised 2021-12-20
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