Modelling Fiscal Sustainability in the Middle East and North African Region

A Pooled Mean Group Approach

Abstract

This paper assesses the sustainability of fiscal policies in a panel of eight Middle East and North African countries over the period 1990 – 2010. Employing recent panel unit root and co-integration techniques, we find that fiscal policies are consistent with inter-temporal budget balance in accordance with the present value approach. The Pooled Mean Group estimator shows that there was no significant causality between government revenues and expenditures in the short-run. However, there is a long-run fiscal synchronization which demonstrates that fiscal sustainability strategies should aim at increasing revenues and cutting spending concurrently to avoid fiscal deficits and its attending problems such as high taxation, reduced savings and investments.