Budget Deficit and Fiscal Policy Variables: Comparing Jordan to the USA

Abstract

Objectives: This study examines Jordan’s budget deficit compared to that of the USA as a reference model of an advanced economy in the field of fiscal policies. It analyzes how this deficit level is influenced by several government fiscal policy variables: tax revenues, general government final consumption expenditures (GFCE), net trade in goods and services, foreign direct investment (FDI) net inflows, and military spending. Methods: The data were obtained from the Federal Reserve Economic Data (FRED), the Central Bank of Jordan, and the World Bank from 1990 to 2022, counted in US/million. The study investigated the marginal means for every level of fiscal policy variables (low, medium, and high) and their different effects on the two budgets by calculating one standard deviation plus and minus from the mean. Ratio comparison, repeated ANOVAs, and regressions for investigating diverse levels were applied. Results: Given the ratios of the two countries related to economic activities, Jordan has higher ratios; even the USA has approximate behavior like Jordan, according to these activities. However, the regression analytics concluded a different significant effect on both governments’ budgets when these fiscal policy variables were low or high. Conclusion: Stricter government spending in Jordan is required, as is outsourcing non-core activities. To a certain level, raising taxes is irrelevant to lowering the deficit, and it deters investment. Enabling foreign investment and more exports than imports also helps handle the deficit, like collaborating with foreign firms, encouraging locals to invest locally or internationally, and investing in infrastructure, industrial, agricultural, and building initiatives.