Measuring and analyzing the impact of revenue policy shocks on the net general budget and GDP in Iraq for the period 2004-2023 using the SVAR model

Abstract

The study aims to investigate the impact of revenue policy shocks on Iraq’s net general budget and gross domestic product (GDP), focusing on how global oil market fluctuations disrupt fiscal policy. The study hypothesises that revenue shocks stemming from these imbalances significantly affect Iraq’s net budget and GDP at current prices.  The study employed unit root tests with structural breaks, cointegration, and causality tests, followed by a structural vector autoregressive (SVAR) model.
The findings reveal that a one standard deviation shock in general revenue notably impacts the net budget, and similarly, a comparable shock in public revenue significantly influences GDP. The results also confirm a unidirectional causal relationship from public revenues to the net budget. To mitigate the adverse effects of revenue shocks from oil price fluctuations, the study recommends structural reforms in the budget and GDP composition. The study's suggestions include boosting investment spending and rationalising current expenditures, which could strengthen fiscal resilience in the face of volatile public revenue from oil.