PUBLIC FINANCE IN JORDAN: A LESSON FROM COVID-19

Abstract

Purpose - COVID-19 is a human and economic tragedy. It has become obvious that the virus pressed hard public finances all over the world. However, countries with relatively limited fiscal space face will experience more pressure. Within this context, this paper has two objectives. First, to outline the status of public finance in Jordan, and in particular, the weight that foreign grants carry in public revenues. Second, to examine the impact of foreign grants on the tax effort in Jordan. In other words, the objective is to examine whether or not public finance in Jordan suffers from the “aid curse”. Methodology - The period 1984 – 2019 forms the data for the statistical analysis. In addition, and to examine the impact of foreign aid on tax effort, the paper uses time series analysis techniques including stationarity tests, optimal lag length criteria, co-integration, long-run relationship, and variance decomposition analysis. Findings - Based on the empirical results, Jordan does suffer from the curse of aid. Grants do have a negative and significant impact of tax revenues (tax effort). Conclusion - Relevant stakeholders in Jordan should use COVID-19 as a “trigger” point for change in the country’s fiscal mobilization process. This is the only way to reduce the growing public debt, and reduce the country’s reliance on foreign grants.

Keywords

• Jordan
• fiscal space
• grants
• cures of aid
• co-integration

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