Revisiting the public debt–unemployment nexus: Empirical evidence from Morocco (1995– 2023)

Abstract

This study empirically examines the relationship between public debt and unemployment in Morocco over the period 1995 to 2023, providing new evidence from a developing economy context. Using the Autoregressive Distributed Lag (ARDL) approach to explore both short- and long-run dynamics between public debt, unemployment and key macroeconomic variables, the results reveal a positive and statistically significant long-run effect of public debt on unemployment, indicating that sustained increases in public borrowing tend to worsen labor market outcomes, possibly through fiscal crowding-out and inefficiencies in public investment. In contrast, the short-run relationship between the two variables is statistically insignificant, suggesting that debt accumulation does not immediately translate into employment changes. A series of diagnostic tests, including the Jarque–Bera, Breusch–Godfrey and Breusch–Pagan–Godfrey tests, confirm the robustness of the model by ruling out normality, autocorrelation and heteroskedasticity issues. Moreover, CUSUM and CUSUMSQ stability tests indicate parameter stability throughout the estimation period. Overall, the findings highlight the importance of strengthening fiscal governance and improving the productivity of public spending to mitigate the adverse long-term employment effects of rising public debt in Morocco.