Short and long-term inflationary effects of fiscal policy: the case of Jordan

This study aimed to identify the short and long-term inflationary effects of fiscal policy, by using the OLS method and the vector autoregression (VAR) on annual data of the Jordanian economy during the period (1985- 2019). After conducting the necessary tests, the study reveals the following results: the ratio of tax revenue and the growth of capital public spending have a negative effect on inflation, while the growth rate of current public spending positively affects inflation. In the short run, the growth rate of current and capital public spending have a positive effect on inflation, while the ratio of tax revenue negatively affects inflation. Based on these results, the study recommends the need to use the tax revenues in the capital spending form, since it considered as a source of public revenue and it induces investment through provision of the infrastructure and the complementary projects. To this is added the of role capital spending in reducing the inflation rates.