Business and Economics Journal

The Dynamic Links between Public Debt, Unemployment, and Budget Deficit in the MENA Countries and Eurozone during 1990 to 2016 Fresh Evidence from Simultaneous Equation Models

Abstract

Khadhraoui Soukaina* and Sami Hammami

This study aims at examining the interactions between three macroeconomic variables, namely: public debt, unemployment and budget deficit. We have assumed that the increase in unemployment is caused by the worsening of the budget deficit and the increase in public debt. To test this hypothesis, we have used a system of simultaneous equations in macroeconomic data from 1990 to 2016 in six countries of the Euro zone countries such as (France, Spain, Portugal, Greece, Ireland and Cyprus) as well as five countries of the MENA countries namely (Tunisia, Algeria, Morocco, Egypt and Jordan).

All the variables were found to be stationary based on recent panel unit root tests. On fully applying both static (, FE, and RE) and dynamic (system GMM) panel data approaches, it was found that confirm that the results of the model estimation for the six countries of the Euro zone approve that there is a two-way relationship there is a two-way relationship between unemployment and debt. Similarly, there is a two-way relationship between the budget deficit and unemployment. At another level, we note a unidirectional relationship from budget deficit to public debt. However, for the five countries of the MENA countries we have found a unidirectional relation going from public debt to unemployment, a twin directional relation between deficit and unemployment and a unidirectional relation going from debt to the deficit.