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Does Fiscal Decentralisation Matter for Poverty and Income Inequality in Pakistan?

Author

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  • Sehrish Shahzad

    (M.Phil. Graduate, Department of Economics, Fatima Jinnah Women University, Rawalpindi)

  • Bushra Yasmin

    (Associate Professor/Chairperson, Department of Economics, Fatima Jinnah Women University, Rawalpindi, respectively)

Abstract

This study endeavours to investigate the impact of fiscal decentralisation on the welfare concerns of poverty, and income inequality in Pakistan for the time period 1972 to 2013. In order to capture the multi-dimensional nature of fiscal decentralisation, three indicators are used namely; revenue decentralisation, expenditure decentralisation and composite decentralisation. Further, the role of institutional quality is also incorporated in apprehending the responsiveness of welfare issues towards the process of fiscal decentralisation. The estimation technique of Generalised Method of Moments (GMM) is employed for estimating the impact of fiscal decentralisation on poverty and income inequality. The empirical findings suggest that fiscal decentralisation has discretely resulted in increasing poverty and income inequality in Pakistan, but the presence of better institutional quality along with fiscal decentralisation can promise to mitigate the negative consequences of fiscal decentralisation for poverty and income inequality in Pakistan. Although, the indirect effect of fiscal decentralisation on welfare concerns, through institutional quality exhibits a fluctuating trend over time, but its average marginal effect is lower than the direct effect of fiscal decentralisation on welfare concerns. Hence, it can be perceived that the log-run welfare issues can be tackled effectively in the presence of institutional quality with a rational level of fiscal decentralisation. Also in order to reap the potential benefits of fiscal decentralisation for poverty and income inequality that has remained a catastrophe in case of Pakistan.

Suggested Citation

  • Sehrish Shahzad & Bushra Yasmin, 2016. "Does Fiscal Decentralisation Matter for Poverty and Income Inequality in Pakistan?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 781-802.
    • Handle: RePEc:pid:journl:v:55:y:2016:i:4:p:781-802
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    References listed on IDEAS

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    Cited by:

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    2. Muhammad Shahid & Khalil Ahmad & Rukhsana Kalim, 2022. "Different dimensions of decentralization and rural–urban poverty in Pakistan," Poverty & Public Policy, John Wiley & Sons, vol. 14(2), pages 166-183, June.
    3. Fakhry El Feky & Nadia El Nemr & Sarah Mousa, 2023. "The Theoretical Impact of Fiscal Decentralisation on National Income Inequality: Does Quality of Governance Matter?," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 71-84, November.

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    More about this item

    Keywords

    Fiscal Decentralisation; Welfare;

    JEL classification:

    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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