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Impact of Fiscal Deficit on Inflation in Sri Lanka: An Econometric Time Series Analysis
ARTICLE

, Ministry of National Policy Planning, Sri Lanka ; , South Eastern University of Sri Lanka, Sri Lanka

ILSHS Volume 70, ISSN 2300-2697

Abstract

There is a relationship between the fiscal deficit and inflation, which was confirmed empirically in several studies conducted in many countries. Sri Lanka has been encountering the problem of inflation for the recent years. But in Sri Lanka, this proposition has not yet been studied scientifically. Therefore, this study was going to fill this gap. The objective of this study was to test the impact of fiscal deficit on inflation in Sri Lanka. For this study, the annual time series data were used during the period of 1959 to 2013. The fiscal deficit, exchange rate, government expenditures and import outflow were used as independent variables while the Colombo consumer price index was considered as dependent variable. In addition, the multiple regressions model was used to test the impact of fiscal deficit on inflation. Based on the regression results, the fiscal deficit preserved the positive relationship with inflation in Sri Lanka at one percent significant level. Therefore, this study confirmed that the fiscal deficit accelerates the inflation in Sri Lanka.

Citation

Mohamed Aslam, A.L. & Ahamed Lebbe, S.M. (2016). Impact of Fiscal Deficit on Inflation in Sri Lanka: An Econometric Time Series Analysis. International Letters of Social and Humanistic Sciences, 70, 8-13. Retrieved May 26, 2019 from .

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