IMPACT OF BUDGET DEFICIT ON MACROECONOMICS VARIABLES: DATA FROM EUROZONE COUNTRIES (1990-2016)

This study aims at examining the interactions between budget deficit and macroeconomic variables namely: budget deficit openness, GDP per capita growth, Gross fixed capital formation, and inflation rate. To test this analysis, we have used the generalized method of moments (GMM) system of macroeconomic data from 1990 to 2016 in six countries of the Eurozone such as France, Spain, Portugal, Greece, Ireland, and Cyprus. For this study, static and dynamic panel estimation techniques are used with the help of the OLS, GLS Fixed and Random effect for static panels, and the GMM to estimate our dynamic panel data model, which also considers the lag level of the budget deficit. The GMM panel model results indicate that openness has a significant negative impact on the budget deficit; the coefficient of gross fixed capital formation has a significant and positive impact on the budget deficit. The GDP per capita has a significant negative impact on the budget deficit and the INF has a significant and positive impact on the budget deficit.