The Impact of Public Spending on Inflation in Libya: An Applied Study on the Libyan Economy (2000–2022)

Abstract

This study examines the impact of public expenditure on inflation in the Libyan economy during the period 2000–2022, aiming to identify the nature of the relationship between the two variables. The study adopts a descriptive approach to present the theoretical framework and an analytical approach using econometric methods and EViews software, based on secondary data published by the Central Bank of Libya and the Ministry of Planning. The results indicate a positive and statistically significant long-run relationship between public expenditure and the inflation rate. A 1% increase in public expenditure leads to an estimated 0.516% increase in the inflation rate, indicating a relatively low response of inflation to changes in public expenditure. The study recommends rationalizing public expenditure, adopting effective fiscal policies to reduce inflation, and directing public spending toward productive sectors to support economic growth and stability.