Unraveling the Dynamics of Budget Deficit Determinants in Afghanistan

Abstract

Across various nations, including Afghanistan, the government plays a pivotal role in coordinating a multitude of national activities, spanning critical sectors like infrastructure, education, and healthcare. The responsibility for executing extensive construction projects and providing essential medical and educational services rests squarely on the shoulders of the government. Meeting these obligations demands a substantial budget allocation. However, challenges can emerge, potentially leading to a budget deficit. Such shortfalls might arise due to a failure to achieve projected revenues, escalated expenditures, or a combination of both. This article endeavors to deeply examine the intricate interplay of diverse factors that contribute to such fiscal gaps, with a specific focus on Afghanistan. The central inquiry revolves around comprehending and delineating the complex relationships among key variables, notably subsidies, inflation rates, tax revenues, income from natural resources, government expenditures, economic growth trajectories, instances of conflict, electoral processes, unemployment rates, and demographic trends. The rationale for singling out and scrutinizing these particular variables draws from a fusion of economic theories, including the Keynesian framework, optimal finance theory, random loan theory, and general choice theory. In this current study, the concept of a budget deficit assumes the role of the dependent variable within the analytical model. It is operationally defined as the disparity between the government's overall expenditures and its generated revenues. Through a comprehensive exploration of the multifaceted connections among the aforementioned variables, this research aims to provide a deeper understanding of the intricate dynamics that influence the equilibrium of budgets and the fiscal stability within government operations. To assess the impact of these factors, the period from 2014 to 2023 underwent rigorous statistical analysis. Utilizing the ordinary least squares method, we aimed to scrutinize how these variables interacted with the budget deficit. The findings from this comprehensive study unveil a noteworthy pattern: revenues from natural resources and taxes, in conjunction with economic growth, exhibit an adverse correlation with the budget deficit. Conversely, government subsidies and general expenditures display a tendency to elevate the budget deficit within the government's fiscal framework.