Short and long-run budgetary relationships: evidence from Lebanon

Bernard Ben Sita, Salah Abosedra and Abdallah Dah
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Salah Abosedra: American University in the Emirates Dubai, UAE

Journal of Developing Areas, 2015, vol. 49, issue 2, 77-91

Abstract: We empirically estimate the short- and the long-run effects of fiscal policy on the Lebanese economy. Such estimates should be valuable in shaping the administrative reforms of the budgetary process in Lebanon where the debt-to-GDP ratio reached about 146% in 2013 (Bank Audi, 2013)0. A Vector Error Correction model is estimated to determine the long-run relationship between government spending and government revenues and their short-run dynamics. The results indicate that long-run adjustments are better managed through government revenues and expenditures, whereas short-run imbalances should be offset by changes in spending. Two adjustment mechanisms leading to long-run equilibrium are identified and their dynamics are explained. The first is "value-based" which stipulates that government reduces spending and increases revenues when the economy is growing. The second is "cost-based" where reduction in government expenditures is called for when interest rates increase.

Keywords: VEC; government expenditures; government revenues; Lebanon; developing areas (search for similar items in EconPapers)
JEL-codes: E62 H30 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.49:year:2015:issue2:pp:77-91

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