Abstract:
One of the primary goals of macroeconomic and fiscal policy in the Ethiopia, as in many
other developed and developing countries is to reduce unemployment. The study
investigates the impact of fiscal policy on unemployment in Ethiopia from 1990 to 2022.
In the analysis, the cointegration test, the ARDL Model were used. The variables studied
include real gross domestic product (RGDP), government spending, tax income, trade
openness, population growth, and the unemployment rate. The stationarity test was
performed, and the findings showed that, with the exception of population increase, all
variables were stationary at first difference. The cointegration test result demonstrated
that the variables under examination have a long-term relationship. Furthermore, ECM
results revealed that government spending has a negative influence on unemployment
while tax income has a beneficial impact. Finally, the Granger causality results revealed
a one-way relationship between unemployment and government spending, with causality
moving from government spending to unemployment. Using this method, the researcher
discovers evidence of a long-run relationship between the unemployment rate and
variables such as government spending and tax income. The study recommends, the
government restructure its spending patterns by directing more funds toward productive
expenditures and utilizing its potential for revenue generation by diversifying Ethiopia's
revenue stream.
