Abstract
This study aims to comprehend the variables of fiscal policy and financial sustainability indicators in Iraq, analyze its components, and assess the impact of changes in fiscal policy on financial sustainability. The research hypothesized that the lack of transparency and ineffective utilization of fiscal policy in influencing economic activity levels, particularly the inconsistency in Government expenditure utilization and lack of planning, lead to fluctuations in certain financial sustainability indicators in Iraq. The descriptive analytical approach was employed to delineate fiscal policy variables and select financial sustainability indicators, with quantitative tools utilized through the application of the Vector Error Correction Model (VECM) to ascertain the effects of fiscal policy variables on specific financial sustainability indicators in Iraq over the period (2004-2022). The study derived various conclusions, notably a substantial rise in public debt as a percentage of GDP in Iraq, presenting challenges to financial policymakers, primarily concerning debt servicing and associated interest costs, alongside an escalation in the tax gap signifying a disconnect between expenditures, especially Government ones, and revenues, consequently widening the gap due to insufficient tax revenue. The research put forth a series of recommendations, including efforts to restrain the escalating growth of Government expenditures while maintaining relative stability in general revenues to reduce reliance on borrowing and, thereby, endeavoring to diminish public debt.
