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Fiscal Discretion and Its Impact on Pakistan Economy

Author

Listed:
  • Muhammad Ismail

    (University of Central Punjab, Rawalpindi Campus)

  • Fazal Husain

    (Department of Economics, Pakistan Institute of Development Economics, Islamabad.)

Abstract

This paper studies the discretionary fiscal policy, its size and particularly the impact of discretionary government spending on output, employment level and inflation over the period of 39 years from 1971-72 to 2009-10. The discretionary fiscal policy is identified through the residual term (based on a fiscal reaction function), political system and market structure. Antonio Fatás and Ilian Mihov (2003) model is amended by including employment level and inflation for quantitative estimates of discretionary policy then this discretion is regressed against output, employment level and inflation variation. The paper finds the presence of fiscal discretion but this discretion does not influence the output, employment and inflation significantly. It attempts to highlight the succinct merits and demerits of the debated discretionary fiscal policy for Pakistan economy. Lastly it suggests a political and economically suitable policy framework to be made available to public policy-makers for discretionary policy conduct so that desired influence on economic variables could be achieved.

Suggested Citation

  • Muhammad Ismail & Fazal Husain, 2012. "Fiscal Discretion and Its Impact on Pakistan Economy," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 339-364.
  • Handle: RePEc:pid:journl:v:51:y:2012:i:4:p:339-364
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    File URL: http://www.pide.org.pk/pdf/PDR/2012/Volume4/339-364.pdf
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    Cited by:

    1. Riaz, Nimra & Munir, Kashif, 2016. "Fiscal Policy and Macroeconomic Stability in South Asian Countries," MPRA Paper 74247, University Library of Munich, Germany.

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