Are the Fiscal Rules in Albania Reducing the Fiscal Deficit?

Abstract

Abstract: Countries face various challenges that force governments to increase government spending to mitigate the effects on the citizens, thus increasing the fiscal deficit. The question raised is whether the fiscal rules are reducing the fiscal deficit in Albania. This paper aims to throw some light on this matter, supporting it empirically which is the gap in the existing literature. The data covering the period 2000-2022 were obtained from the Ministry of Finance and Economy of Albania, INSTAT, and the World Bank. EViews 7 and the method of LS were used for the empirical analysis. Three regressions were performed to specifically see the impact of fiscal rules (dummy variable), economic growth, and public debt on the fiscal deficit. The results indicate a negative relationship between fiscal rules and economic growth to the fiscal deficit, and a positive relationship between public debt to the fiscal deficit, however, in each case, the relationship is statistically insignificant. The government can rely on these results to ensure the appropriate mechanisms to receive the benefits of fiscal rules, while other academics can deepen the analysis by evaluating the impact of the fiscal rule strength index in Albania and in the region as well.

Keywords: Empirical Evidence, Debt, Economic Growth, Government, Public Finance

JEL Classification: E62, H68, O47