Estimating and analyzing the extent of fiscal policy response to public debt movements in Iraq in light of the fiscal reaction function

The research aims to estimate the fiscal reaction function in Iraq as a quantitative tool to measure the government's response to public debt movements and assess its commitment to achieving financial sustainability. The study adopted the quantitative analytical approach in analyzing annual time series data using the Autoregressive Distributed Lag (ARDL) model during the period (2005-2023) in addition to single root and cointegration tests to analyze the relationship between the primary balance to GDP ratio and a number of macro variables, such as the public debt to GDP ratio, the ratio of oil revenues to total public revenues, the government spending gap in real terms, and the output gap in real terms. The research assumed that fiscal policy responds to the rise in public debt by improving the primary balance of the budget, thus ensuring financial sustainability in the long term. The study found that fiscal policy in Iraq does not respond effectively to public debt levels, reflecting a lack of fiscal engagement with debt accumulation. This is an indicator of deficiencies in the public debt management framework and a direct threat to the sustainability of public finances in the short and long term. The study concluded that a proactive fiscal policy should be adopted within a medium-term framework, aiming to reduce dependence on oil, diversify revenue sources, and enhance the resilience of public finances in the face of shocks.