Browsing by Author "Tafesse, Amanuel"

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    The Impact of Budget Deficit on Inflation in Ethiopia
    (A.A.U, 2021-10) Tafesse, Amanuel; Admassie, Assefa (Dr)
    Ethiopian economy is one which has experienced consistently a high budget deficit with unstable inflation rate for the last many periods. The main objective of the study was to examine the impact of budget deficit on inflation in Ethiopia by using annual time series data over the period from 1980 to 2019. For this purpose both descriptive and econometrics methods of analysis, such as the Classical OLS long run regression, Johansen Co-integration and Error correction models were employed. The result of the study revealed that budget deficit has positive and significant impact on CPI in Ethiopia, in the long run. Also, money supply has a direct and significant impact on CPI in Ethiopia. Unlike the long run, budget deficit has an insignificant impact on the CPI in Ethiopia, in the short run. Moreover, the result revealed that there are 4 co-integrating equation in the model. Based on these results, the following recommendations are proposed. The central government should improve its revenue generation capacity through a comprehensive tax reform and reduce the irrational allocation of the budget to the unproductive sectors in order to narrow the budget gap. In addition, government should improve the financial sector and rely on it, as a source of deficit financing. Key words: Inflation, Budget Deficit, Error Correction Model, Government Expenditure and Fiscal Policy