IDEAS home Printed from https://ideas.repec.org/a/rfh/bbejor/v10y2021i2p204-220.html
   My bibliography  Save this article

Fiscal Discretion And Aggregate Demand: A Case Study Of Pakistan

Author

Listed:
  • AZRA KHAN

    (Assistant Professor, Federal Urdu University of Arts, Science and Technology, Islamabad (FUUAST), Pakistan)

  • SADIA SAFDAR

    (Assistant Professor, Federal Urdu University of Arts, Science and Technology, Islamabad (FUUAST), Pakistan)

  • SAMINA BIBI

    (M.Phil Scholar, Federal Urdu University of Arts, Science and Technology, Islamabad (FUUAST), Pakistan)

Abstract

The goal of the study is to investigate the impact of discretionary fiscal policy on aggregate demand. Secondly, we analyze the factors that affect fiscal discretion regarding Pakistan over the period 1984-2020.The discretionary fiscal policy is measured by using fiscal policy rule. We exert Generalized Method of Moments (GMM) in order to find the relationship between variables. The results show that fiscal discretion has no effect on aggregate demand. Findings also show that government size, income level, institutional quality and country size are negatively related to fiscal discretion while inflation rate is positively related to fiscal discretion. High efficacy of institutions and more checks and balances on government reduce the discretion. High inflation is related to high price volatility, which ultimately affects discretionary spending.

Suggested Citation

  • Azra Khan & Sadia Safdar & Samina Bibi, 2021. "Fiscal Discretion And Aggregate Demand: A Case Study Of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(2), pages 204-220.
    • Handle: RePEc:rfh:bbejor:v:10:y:2021:i:2:p:204-220
    DOI: https://doi.org/10.61506/
    as

    Download full text from publisher

    File URL: https://bbejournal.com/BBE/article/view/387/314
    Download Restriction: no
    File URL: https://bbejournal.com/BBE/article/view/387
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.61506/?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Fabrizio Coricelli & Riccardo Fiorito, 2013. "Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure," Documents de travail du Centre d'Economie de la Sorbonne 13033, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Sophocles N. Brissimis & Eugenie N. Garganas & Stephen G. Hall, 2014. "Consumer credit in an era of financial liberalization: an overreaction to repressed demand?," Applied Economics, Taylor & Francis Journals, vol. 46(2), pages 139-152, January.
    3. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
    4. Vincent A. Onodugo & Oluchukwu F. Anowor & Nnaemeka O. Ukweni & Francis O. Ibiam, 2014. "Bank Credit and Private Sector Investment: Evidence from Nigeria," International Journal of Management Sciences, Research Academy of Social Sciences, vol. 3(2), pages 82-92.
    5. Amjad Ali & Ismail Senturk, 2019. "Justifying the Impact of Economic Deprivation, Maternal Status and Health infrastructure on Under-Five Child Mortality in Pakistan: An Empirical Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 8(3), pages 140-154, September.
    6. Muhammad Arshad Khan & Abdul Qayyum, 2006. "Trade Liberalisation, Financial Sector Reforms, and Growth," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 711-731.
    7. Rüdiger Bachmann & Tim O. Berg & Eric R. Sims, 2015. "Inflation Expectations and Readiness to Spend: Cross-Sectional Evidence," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 1-35, February.
    8. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
    9. Amjad Ali & Marc Audi, 2016. "The Impact of Income Inequality, Environmental Degradation and Globalization on Life Expectancy in Pakistan: An Empirical Analysis," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 4(4), pages 182-193, April.
    10. Torsten Persson & Guido Tabellini, "undated". "Political Institutions and Policy Outcomes: What are the Stylized Facts?," Working Papers 189, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    11. Ali, Amjad & Audi, Marc, 2018. "Macroeconomic Environment and Taxes Revenues in Pakistan: An Application of ARDL Approach," MPRA Paper 88916, University Library of Munich, Germany.
    12. Ameet Kumar & Niaz Ahmed Bhutto & Khalid Ahmed Mangrio & Muhammad Ramzan Kalhoro, 2019. "Impact of external debt and exchange rate volatility on domestic consumption. New evidence from Pakistan," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1568656-156, January.
    13. Aygun Garayeva & Gulzar Tahirova, 2017. "Government Spending Effectiveness and the Quality of Fiscal Institutions," Business & Management Compass, University of Economics Varna, issue 2, pages 128-143.
    14. Naveed Ahmed SHAIKH & Perveen SHAH & Najaf SHAH, 2015. "Empirical Estimation of GDP determinants, Household Consumption Expenditure and the Consumption Multiplier in Pakistan (1985-2011)," Journal of Economics and Political Economy, KSP Journals, vol. 2(2), pages 317-330, June.
    15. Marc Audi & Amjad Ali, 2016. "A Causality and Co-integration Analysis of Some Selected Socio-Economic Determinants of Fertility: Empirics from Tunisia," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 5(1), pages 20-36, March.
    16. repec:jle:journl:126 is not listed on IDEAS
    17. Marc Audi & Amjad Ali & Yannick Roussel, 2021. "Aggregate and Disaggregate Natural Resources Agglomeration and Foreign Direct Investment in France," International Journal of Economics and Financial Issues, Econjournals, vol. 11(1), pages 147-156.
    18. Shafik Hebous, 2011. "The Effects Of Discretionary Fiscal Policy On Macroeconomic Aggregates: A Reappraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 674-707, September.
    19. Audi, Marc & Ali, Amjad, 2019. "The Advancement in Information and Communication Technologies (ICT) and Economic Development: A Panel Analysis," MPRA Paper 93476, University Library of Munich, Germany.
    20. Alan J. Auerbach, 2002. "Is there a role for discretionary fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 109-150.
    21. Rajabrata Banerjee, 2012. "Population Growth and Endogenous Technological Change: Australian Economic Growth in the Long Run," The Economic Record, The Economic Society of Australia, vol. 88(281), pages 214-228, June.
    22. Platon Monokroussos & Dimitrios D. Thomakos, 2012. "Can Greece be saved? Current Account, fiscal imbalances and competitiveness," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 59, Hellenic Observatory, LSE.
    23. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    24. Audi, Marc & Ali, Amjad & Roussel, Yannick, 2021. "Measuring the Tax Buoyancy: Empirics from South Asian Association for Regional Cooperation (SAARC)," MPRA Paper 109567, University Library of Munich, Germany.
    25. Roel Beetsma & Massimo Giuliodori, 2010. "Discretionary Fiscal Policy: Review and Estimates for the EU," CESifo Working Paper Series 2948, CESifo.
    26. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    27. Ms. Annalisa Fedelino & Mr. Mark A Horton & Anna Ivanova, 2009. "Computing Cyclically-Adjusted Balances and Automatic Stabilizers," IMF Technical Notes and Manuals 2009/005, International Monetary Fund.
    28. M. Ali Kemal & Usman Qadir, 2005. "Real Exchange Rate, Exports, and Imports Movements: A Trivariate Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(2), pages 177-195.
    29. Colin Hunt, 2005. "Discretion and Cyclicality in Irish Budgetary Management 1969-2003," The Economic and Social Review, Economic and Social Studies, vol. 36(3), pages 295-321.
    30. Athanasios Tagkalakis, 2014. "Discretionary fiscal policy and economic activity in Greece," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(4), pages 687-712, November.
    31. V. V Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(3), pages 533-563.
    32. Maryam Bint-e-Ajaz & Nazima Ellahi, 2012. "Public-Private Investment and Economic Growth in Pakistan: An Empirical Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 61-78.
    33. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
    34. Annalisa Fedelino & Mark A Horton & Anna Ivanova, 2009. "Computing Cyclically-Adjusted Balances and Automatic Stabilizers," IMF Technical Notes and Manuals 09/05, International Monetary Fund.
    35. Luca Agnello & Jacopo Cimadomo, 2012. "Discretionary Fiscal Policies over the Cycle: New Evidence Based on the ESCB Disaggregated Approach," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 43-85, June.
    36. Wanjun Yao & Tomoko Kinugasa & Shigeyuki Hamori, 2013. "An empirical analysis of the relationship between economic development and population growth in China," Applied Economics, Taylor & Francis Journals, vol. 45(33), pages 4651-4661, November.
    37. Kremer, Jana & Rodrigues Braz, Cláudia & Brosens, Teunis & Langenus, Geert & Momigliano, Sandro & Spolander, Mikko, 2006. "A disaggregated framework for the analysis of structural developments in public finances," Working Paper Series 579, European Central Bank.
    38. Amjad Ali & Marc Audi, 2018. "Macroeconomic Environment and Taxes Revenues in Pakistan: An Application of ARDL Approach," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 7(1), pages 30-39, March.
    39. Majeed, Muhammad Tariq & Khan, Saniya, 2008. "The Determinants of Private Investment and the Relationship between Public and Private Investment in Pakistan," MPRA Paper 49301, University Library of Munich, Germany.
    40. Sidney S. Alexander, 1952. "Effects of a Devaluation on a Trade Balance," IMF Staff Papers, Palgrave Macmillan, vol. 2(2), pages 263-278, April.
    41. 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.
    42. Dean Baker & J. Bradford Delong & Paul R. Krugman, 2005. "Asset Returns and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 289-330.
    43. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
    44. repec:pra:mprapa:40579 is not listed on IDEAS
    45. Sajawal Khan & Muhammad Arshad Khan, 2007. "What Determines Private Investment? The Case of Pakistan," Finance Working Papers 22202, East Asian Bureau of Economic Research.
    46. Afia Malik, 2007. "How Pakistan Is Coping with the Challenge of High Oil Prices," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(4), pages 551-575.
    47. Rana Nabeel Ahmed & Kahlil Ahmad, 2016. "Impact of Population on Economic Growth: A Case Study of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 5(3), pages 162-176, September.
    48. Greenaway, David & Morgan, Wyn & Wright, Peter, 2002. "Trade liberalisation and growth in developing countries," Journal of Development Economics, Elsevier, vol. 67(1), pages 229-244, February.
    49. Lee, Ha Yan & Ricci, Luca Antonio & Rigobon, Roberto, 2004. "Once again, is openness good for growth?," Journal of Development Economics, Elsevier, vol. 75(2), pages 451-472, December.
    50. Beyza Ural Marchand, 2017. "How does international trade affect household welfare?," IZA World of Labor, Institute of Labor Economics (IZA), pages 378-378, August.
    51. Nikolaos Dritsakis & Erotokritos Varelas & Antonios Adamopoulos, 2006. "The Main Determinants of Economic Growth : An Empirical Investigation with Granger Causality Analysis for Greece," European Research Studies Journal, European Research Studies Journal, vol. 0(3-4), pages 47-58.
    52. von Kalckreuth, Ulf & Wolff, Guntram B., 2007. "Testing for contemporary fiscal policy discretion with real time data," Discussion Paper Series 1: Economic Studies 2007,24, Deutsche Bundesbank.
    53. Amassoma Ditimi & Ogbuagu Matthew I., 2015. "FDI, private investment and public investment in Nigeria: An unravelled dynamic relation," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 3(5), pages 10-18, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sadia Safdar & Azra Khan & Ihtsham Ul Haq Padda & Madiha Abid, 2022. "Linkages Among Institutions, Investment And Growth: The Case Of Developing Countries," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 350-361.
    2. Azra Khan & Sadia Safdar & Nazima Elahi, 2021. "An Evaluation Of The Impact Of Corruption On Tax Morale And Taxation In Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(3), pages 259-272.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arzoo Mushtaq & Shahnawaz Malik & Muhammad Hanif Akhtar, 2022. "Nonlinear Taylor Rule And Inflation-Targeting In Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 185-197, June.
    2. Tariq Hussain & Ahmad Raza Ul Mustafa & Makhdum M.I. & Kaleem Ullah, 2022. "Defense Expenditures, Fiscal Deficit And Debt Servicing Nexus: A Case Study Of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 74-83, June.
    3. Bismillah & Shahnawaz Malik & Muhammad Ramzan Sheikh, 2022. "Trade Liberalization And Fiscal Stance In Selected Developing Countries: A Granger Causality Approach In Var Framework," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 134-159, June.
    4. repec:rfh:jprjor:v:8:y:2022:i:2:p:1-15 is not listed on IDEAS
    5. Muhammad Ashraf & Arslan Ali Raza & Muhammad Ishaq, 2022. "A Novel Approach Of Social Media Analytics For Predicting National Consumer Confidence Index," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 220-234, June.
    6. Muhammad Hatim & Zerish Tasleem & Muhammad Nadeem, 2022. "The Influence Of Education And Health On Rural Household Poverty: A Moderating Role Of Culture In Punjab, Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 120-133, June.
    7. repec:rfh:jprjor:v:8:y:2022:i:2:p:34-53 is not listed on IDEAS
    8. repec:rfh:jprjor:v:7:y:2021:i:4:p:31-40 is not listed on IDEAS
    9. repec:rfh:jprjor:v:7:y:2021:i:4:p:41-49 is not listed on IDEAS
    10. repec:rfh:jprjor:v:8:y:2022:i:1:p:18-30 is not listed on IDEAS
    11. repec:rfh:jprjor:v:7:y:2021:i:4:p:1-10 is not listed on IDEAS
    12. Shahzad Hassan & Norazah Mohd Suki & Maria Akhtar & Khan Zaman Khan & Naveed Hassan, 2022. "What Is The Role Of Humble Leadership In Shaping Customer Citizenship Behavior And Employee Innovative Work Behavior? Evidence From Service Sector," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 235-243, June.
    13. Alim, Wajid & Ali, Amjad & Minhas, Amna Shafiq, 2022. "The Impact of Leverage on the Firm Performance: A Case of Fertilizers Sector of Pakistan," MPRA Paper 114200, University Library of Munich, Germany.
    14. repec:rfh:jprjor:v:8:y:2022:i:2:p:23-33 is not listed on IDEAS
    15. Mehmood, Aqsa & Siddique, Hafiz Muhammad Abubakar & Ali, Amjad, 2022. "Impact of Health on Worker Productivity: Evidence from South Asia," MPRA Paper 113557, University Library of Munich, Germany.
    16. Aqsa Mehmood & Hafiz Muhammad Abubakar Siddique & Amjad Ali, 2022. "Impact Of Health On Worker Productivity: Evidence From South Asia," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 1-8, June.
    17. Muhammad Sajjad & Atif Mukhtar & Nauman Yaseen, 2022. "Impact Of Pandemic Environment On Employees Working Morale Through Mediating Role Of Performance And Moderating Role Of Transformational Leadership," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 244-261, June.
    18. Zerish Tasleem & Muhammad Hatim & Mahnoor Malik & Muhammad Nadeem & Muhammad Tariq Ramzan, 2022. "The Impact Of Health Facilities On Rural Poverty In Southern Punjab, Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 104-109, June.
    19. Marc Audi & Fiaz Ahmad Sulehri & Amjad Ali & Razan Al-Masri, 2022. "An Event Based Analysis of Stock Return and Political Uncertainty in Pakistan: Revisited," International Journal of Economics and Financial Issues, Econjournals, vol. 12(5), pages 39-56, September.
    20. repec:rfh:jprjor:v:7:y:2021:i:4:p:11-17 is not listed on IDEAS
    21. Afeefa Ahmad & Dilshad Ahmad, 2022. "Effects Of Women Empowerment On Access To Healthcare In Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 84-92, June.
    22. repec:rfh:jprjor:v:7:y:2021:i:4:p:18-30 is not listed on IDEAS
    23. Sadia Safdar & Azra Khan & Ihtsham Ul Haq Padda & Madiha Abid, 2022. "Linkages Among Institutions, Investment And Growth: The Case Of Developing Countries," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 350-361.
    24. Reicher, Claire, 2014. "Systematic fiscal policy and macroeconomic performance: A critical overview of the literature," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-37.
    25. Shazia Sana & Shahnawaz Malik & Muhammad Ramzan Sheikh, 2022. "Investigating The Effectiveness Of Channels Of Monetary Transmission Mechanism In Pakistan: An Application Of Var Model, Impulse Response Function And Variance Decomposition," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 160-184, June.
    26. Ahmad Latif & Rimsha Javed, 2021. "Does Economic Growth, Population Growth And Energy Use Impact Carbondioxide Emissions In Pakistan? An Ardl Approach," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(2), pages 85-91, June.
    27. Ali, Amjad, 2022. "Financial Liberalization, Institutional Quality and Economic Growth Nexus: Panel Analysis of African Countries," MPRA Paper 116329, University Library of Munich, Germany, revised 2022.
    28. Alvi, Aramish Altaf & Audi, Marc & Ashiq, Rakhshanda, 2024. "Is indirect Taxes Bad for the Poor? Examining the Determinants of Poverty in Pakistan," MPRA Paper 121536, University Library of Munich, Germany.
    29. Ghulam Qambar & Shahid Mehmood & Nosheen Kanwal, 2021. "Promotion Oriented Research Culture: Understanding Scholars’ Deficiencies In Research Proficiency," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(3), pages 135-143.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rfh:bbejor:v:10:y:2021:i:2:p:204-220. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Muhammad Irfan Chani (email available below). General contact details of provider: https://edirc.repec.org/data/rffhlpk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.