Assessment of the impact of state budget expenditures on non-oil growth

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Summary

The study assesses how state budget expenditures are transmitted to non-oil and gas economic growth in Azerbaijan using official annual data for 2019-2025. To avoid comparing nominal fiscal expansion with real output growth, nominal budget expenditure growth is deflated by the consumer price index and evaluated against real non-oil GDP growth. The analysis also separates oil-gas and non-oil-gas budget revenues relative to non-oil GDP, examines revenue coverage and real resource productivity, and recalculates the Fiscal Transmission Effectiveness Index. The contemporaneous Pearson correlation between real budget expenditure growth and real non-oil growth is r = -0.393 (p = 0.383), while the one-year-lag correlation is r = -0.424 (p = 0.402); with only seven annual observations, these coefficients are interpreted diagnostically rather than causally. By 2025, the expenditure-to-non-oil-GDP ratio declines to 41.8 percent, real non-oil output per unit of real budget expenditure rises to 2.47, and revenue coverage reaches 101.4 percent. Oil-gas budget revenues relative to non-oil GDP fall from about 27.0 percent in 2019 to 20.3 percent in 2025, while the corresponding non-oil revenue ratio increases from 21.1 to 22.1 percent. The findings indicate that fiscal transmission should be assessed jointly with the revenue structure, price-adjusted expenditures, accumulated public capital and private-sector dynamics rather than inferred from parallel nominal growth.