Analyzing the Relationship Between Public Revenues and Public Expenditures: An Econometric Study of the Libyan Economy Using the Autoregressive Distributed Lag (ARDL) Model for the Period 1995–2025

Abstract

This research aims to measure the impact of public revenues on the size of public spending in Libya during the research period from 1995 to 2025. The research used time series data and implemented a distributed lag model after confirming the stationarity and cointegration tests for the data. Revenues were elastic to the size of public spending, meaning that the relative increase in public spending was greater than the relative increase in public revenues in the long run. This suggests a potential future fiscal deficit in Libya's public treasury in the coming years. The divergence between public spending and public revenues takes a relatively long time, indicating that adjustment between them only occurs with the availability of oil revenues, which are subject to international conditions in most cases, or with domestic stability in oil exports. Financial policymakers in Libya must control the rapid growth of public spending and restructure the state's tax system to generate public revenues that match those of the oil sector. This is necessary to avoid the anticipated severe fiscal deficit and ensure the state's financial stability.