Historical periodization and potential structural breaks in the fiscal policy–human capital nexus in Azerbaijan

Abstract

This study examines the historical evolution of the relationship between fiscal policy and human capital formation in Azerbaijan over the period 1991–2024, with particular emphasis on regime changes and potential structural breaks. The analysis is motivated by the fact that Azerbaijan’s post-independence development has been characterized by profound economic, institutional, geopolitical, and external shocks that make the assumption of a stable fiscal–human capital relationship unrealistic. A historical-periodization approach is combined with a structural-break-oriented econometric framework to identify distinct phases in the evolution of fiscal capacity, resource revenues, public expenditure, inflation, institutional development, and human capital financing. Eight major periods are distinguished: systemic disruption in 1991–1994; stabilization and institution building in 1995–2004; oil-driven fiscal expansion in 2005–2007; the global financial crisis in 2008–2010; maturation of the oil-financed growth model in 2011–2013; the oil-price shock and macroeconomic adjustment in 2014–2016; fiscal and tax administration reforms in 2017–2019; and the pandemic, conflict, reconstruction, and renewed energy-revenue environment during 2020–2024. The analysis suggests that the transmission of fiscal resources into education, health, and productive capabilities has varied substantially across these regimes. The study proposes the use of Zivot–Andrews, Bai–Perron, CUSUM, ARDL, and NARDL techniques for subsequent empirical verification of the identified structural changes. The findings emphasize that fiscal capacity should not be evaluated solely through aggregate revenue or expenditure ratios, since the composition, institutional quality, macroeconomic environment, and source of public revenues strongly influence their long-term contribution to human capital development.