The Effects of Unemployment, Inflation and Interest Rates on the Government Expenditure in the philippines

Abstract

This study examines the nature and interaction of the government expenditure (GE) and the macroeconomic variables such as unemployment rate (UNEM), inflation rate (IN), and real interest rate (RIR) in the Philippines from 1976 to 2019. This study aims to determine the effect of the macroeconomic variables on GE in the Philippines based on time series data from the World Bank Database. The econometric techniques such as Augmented Dickey•Fuller (ADF), Johansen cointegration test and Granger causality, were used to investigate the relationship that transpires in the variables. The properties of time series were examined through unit root test and the results of the ADE unit root test which showed that the independent variables IN, RIR, and UNEM are stationary at level form. while government expenditure percent of GDP is stationary at first difference. The Johansen cointegration test stated that there exists a long-run relationship between UNEM, IN, RJR and GE. The Granger causality revealed that UNEM, IN. RIR does not cause GE. hence, there is no causation between these variables.