This paper aims to investigate the optimal size of government expenditure in Jordan using various econometric models, including the Scully Model, the Armey Curve (quadratic model) and the Discrete Threshold Regression Model. The study covers quarterly data from 1976 to 2023 to determine the expenditure-to-gross domestic product (GDP) ratio that maximizes economic growth.
The study employs three different econometric models to estimate the optimal government expenditure level. Key variables include real GDP growth and government expenditure as a percentage of GDP. The study introduces a novel analysis by using threshold models to identify critical expenditure points that differentiate growth-enhancing spending from detrimental spending.
The results indicate that Jordan’s optimal government expenditure level ranges between 27 and 28% of GDP. The analysis shows that exceeding this threshold leads to inefficiencies and negative impacts on economic growth. It further highlights that the current government expenditures exceed this optimal range, signaling a need for fiscal adjustments to ensure sustainable growth.
While the study covers a wide timeframe (1976–2023) and utilizes robust modeling techniques, it is limited by the exclusion of sector-specific disaggregated spending data (e.g. defense vs. education), which may yield different threshold dynamics. Also, external shocks such as refugee inflows or aid volatility are not explicitly modeled.
To improve fiscal efficiency, the study recommends revisiting the composition and allocation of public expenditures by identifying and curbing wasteful spending across ministries and agencies, reprioritizing capital expenditure towards high-impact infrastructure and human capital projects, enhancing efficiency through digital transformation and unified service management, enforcing spending ceilings through fiscal rules targeting low-productivity expenditures and rationalizing independent government units’ structures and integrating procurement systems.
This study provides a focused analysis of Jordan’s economy and offers critical insights into the relationship between government spending and economic growth. The findings are particularly relevant for policymakers and researchers aiming to achieve fiscal sustainability in Jordan by optimizing public expenditure levels.
