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Instrumental Effects of Fiscal Policy for Pakistan Economy

Author

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  • Ghulam Rasool Madni

    () (The University of Lahore, Pakistan)

Abstract

Fiscal policy has much controversial debate regarding its effectiveness on economic growth. Taxation and government expenditure are two main instruments of fiscal policy. This paper is aimed to analyze the effect of different categories of government expenditure on economic growth of Pakistan. Based on impact on economic growth, government expenditures are classified into productive (having positive or neutral effect on economic growth) and unproductive expenditures (having negative or insignificant impact on economic growth). The data time span for this study is 1979-2012. After classification of expenditures, the impact of fiscal instruments is analyzed by utilizing the ARDL approach of Co integration which is a better estimation technique for small sample size. The results reveal that unproductive government expenditure have negative impact while productive government expenditure has insignificant impact on the economic growth. It is found that private investment positively and significantly affect the economic growth. On the other side, direct and indirect taxes have also insignificant impact on economic growth of Pakistan

Suggested Citation

  • Ghulam Rasool Madni, 2013. "Instrumental Effects of Fiscal Policy for Pakistan Economy," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(50), pages 27-50, December.
  • Handle: RePEc:rej:journl:v:16:y:2013:i:50:p:27-50
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    References listed on IDEAS

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    1. repec:agr:journl:v:3(612):y:2017:i:3(612):p:125-146 is not listed on IDEAS

    More about this item

    Keywords

    Fiscal Policy; Economic growth; Productive and Unproductive government expenditures; co integration;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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