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Decision between Public Investment and Public Consumption: A Policy Analysis

Author

Listed:
  • Muhammad Raashid

    (PhD Scholar, Pir Mehr Ali Shah Arid Agriculture University Rawalpindi, Punjab, Pakistan.)

  • Abdul Saboor

    (Dean, Faculty of Social Sciences, Pir Mehr Ali Shah Arid Agriculture University Rawalpindi, Punjab, Pakistan)

  • Aneela Afzal

    (Assistant Professor, Department of Sociology, Pir Mehr Ali Shah, Arid Agriculture University, Rawalpindi, Punjab, Pakistan.)

Abstract

This study aims to draw a policy decision between public investment and public consumption by designing a Dynamic Stochastic General Equilibrium (DSGE) model for the economy of Pakistan which is experiencing persistent shocks that have stressed the growth pattern. The DSGE model has a microeconomic foundation and justifies locus critics by envisioning an artificial economy. The model is evaluated and set to best fit for data through an exercise of moment matching. Government consumption shocks and Government Investment shocks are used to trace out the behaviour of the economy. The analysis confirms that Pakistan economy could go for capital formation through public investment but it results in compromised public consumption and structural unemployment. It is further concluded that the export base and long-run public investment programs are needed to achieve sustainable development in the economy.

Suggested Citation

  • Muhammad Raashid & Abdul Saboor & Aneela Afzal, 2020. "Decision between Public Investment and Public Consumption: A Policy Analysis," Global Economics Review, Humanity Only, vol. 5(1), pages 131-152, March.
    • Handle: RePEc:aaw:journl:v:5:y:2020:i:1:p:131-152
    DOI: 10.31703/ger.2020(V-I).11
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal Policy; Analysis; Public Investment; Consumption; DSGE model.;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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