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Fiscal Determinants of Inflation in Pakistan

Author

Listed:
  • Bilal Raza

    (State Bank of Pakistan)

  • Khurram S Mughal

    (State Bank of Pakistan)

Abstract

This study explores relevance of Fiscal Theory of Price Level for Pakistan, which postulates that fiscal variables also play a role in determining inflation. We have used Autoregressive Distributive Lag model over the period of FY2000Q1-to-FY2019Q3. Unlike most of the previous studies that used only aggregate measure of fiscal deficit, we also have tested for disaggregated fiscal variables on the revenue side. The article finds inflation in Pakistan is a multidimensional process; and fiscal variables along with monetary and supply side factors contribute significantly towards inflation. In particular, we find that different variations of disaggregated fiscal variables like total tax, indirect tax and sales tax are important determinants of inflation.

Suggested Citation

  • Bilal Raza & Khurram S Mughal, 2022. "Fiscal Determinants of Inflation in Pakistan," SBP Working Paper Series 108, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:108
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal; Monetary; Inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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