The impact of discretionary fiscal policy on GDP under oil shocks in Iraq: a case study

Abstract

 Discretionary fiscal policy is one of the vital tools governments use to deal with economic shocks, especially in rentier countries that rely heavily on oil revenues. This research aims to analyze the impact of discretionary fiscal policy on GDP in Iraq, given oil price fluctuations and recurring oil shocks.

The research is based on the hypothesis that oil shocks directly affect economic performance, and that fiscal responses through discretionary spending and revenue tools can contribute to mitigating these effects. The autoregressive distributed lag (ARDL) model was used to measure the short- and long-term relationship between fiscal policy tools and GDP.

The results showed a statistically significant relationship between discretionary spending and revenues and GDP, particularly in the long term, while the impact of oil shocks was more pronounced in the short term.

The research recommends restructuring fiscal policy in Iraq to enhance its flexibility, establishing sovereign and reserve funds to address oil market fluctuations, and reducing overreliance on oil revenues by diversifying sources of income.