The Relationship between Fiscal Policy and Economic Growth in Sri Lanka

Abstract

Fiscal policy perform an important role to achieve macroeconomic objectives. Government revenue is mainly based on tax revenue. Capital Expenditure and Recurring expenditure are the parts of the Government Expenditure. The objective of the study is to identify the relationship between Fiscal Policy and Economic Growth in Sri Lanka for the period of 2000-2019. The dependent variable of the study is Economic Growth and it is determined by Fiscal policy components (Independent variables) such as government revenue (GR) and government expenditure (GE). Correlation and Regression analysis were used to identify the impact of fiscal policy on Economic Growth. The study results are showed that there is a strong positive relationship between Government expenditure and gross domestic product. Consequently, there is a strong negative relationship between Government revenue and gross domestic product. The study findings support the Keynesian theory.