The Impact of Public Expenditure and Public Debt on Taxes: A Case Study of Jordan

Abstract

The study aimed to estimate the impact of capital expenditure, current expenditure and external and internal public debt on taxes in Jordan during the period 2001–2014. It adopted the multiple linear regression method by E-views program to study the impact of the independent variables (represented by capital expenditure, current expenditure, external and internal public debit) on the dependent variable (taxes). The statistical analysis showed a statistically significant, positive impact of both the capital expenditure and the current expenditure on taxes. The study also found a statistically significant, positive relationship between external and internal public debt on taxes in Jordan. The study presented a number of recommendations, most importantly for the public sector, taking into account the capital expenditure, the current expenditure and the external and internal public debt, which directly affect the tax increases in Jordan. There is a need to use non-traditional alternatives to finance capital expenditures instead of external public debt and internal sources, such as Sukuk Murabaha Islamic participation, to finance capital expenditure for the Government to build schools, hospitals and other government services. The Government should take into account the current expenditure of tax revenues, while capital expenditure should be covered by non-traditional means.