The Impact of Fiscal Policy on Economic Growth in Palestine

Suleiman M. Abbadi, Mohammad Olabi, Haytham Owida and Abdelfattah Abu-Shokor

International Journal of Economics and Finance, 2021, vol. 13, issue 8, 51

Abstract: This study aims at finding the impact of fiscal policy with its various instruments such as, current expenditures, capital expenditures, Tax revenues, non-Tax revenues, foreign assistance and value added tax revenues on economic growth in Palestine represented by the rate of growth of real GDP during the period 1996-2018. A Multiple Regression Analysis was used to build the model and test the hypothesis. The estimated results showed four of the six independent variables have a significant effect on economic growth, with current and development expenditure having a positive effect while tax and non-tax revenue having a negative effect. On the other hand, foreign aid and clearing tax by Israeli authorizations have no significant effect on economic growth, (though, the last one is significant at 10%). The study has also found that government expenditures need to be redistributed between current and development expenditures so as to increase the share of development expenditures in order to maintain a high growth rate. The paper recommends that the tax rate should be reduced on productive projects which are designed to decrease the unemployment rate and increase the rate of growth. The study has also pointed out to the significance of re-negotiating the Paris accord with the Israeli authorities so as to improve the terms of this accord, especially in the case of collecting the VAT revenues.

Date: 2021
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