Assessing the short-and long-run relationships between fiscal deficit and economic growth in Morocco

Type of the article: Research ArticleAbstractThis paper aims to investigate the short- and long-term relationships between fiscal deficit and economic growth in Morocco over the period 1985–2024. The ARDL bounds test approach is used to determine the existence of a cointegration relationship, while the error correction model (ECM) captures the short-run dynamics. The empirical results indicate that fiscal deficit exerts an immediate and significant negative effect on economic growth, suggesting that deficit financing may generate short-term macroeconomic pressures. However, the lagged effects of the fiscal deficit become positive and significant, reflecting a delayed expansionary impact of fiscal policy. In the long run, fiscal deficit has a negative and significant effect on economic growth, implying that persistent budget imbalances can hinder growth through debt accumulation and crowding-out effects. The bounds test confirms the existence of a stable cointegration relationship between the budget deficit and economic growth in Morocco. Furthermore, the negative and statistically significant error correction term indicates a relatively rapid adjustment towards long-term equilibrium following short-term shocks. These findings highlight the importance of prudent and sustainable fiscal management to support long-term economic growth in Morocco.