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Macroeconomic effects of fiscal policy in Pakistan: a disaggregate analysis

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  • Kashif Munir
  • Nimra Riaz

Abstract

This study analyzes the macroeconomic effects of fiscal policy on macroeconomic variables in Pakistan. The study utilizes VAR framework and uses quarterly data of Pakistan from 1976Q1 to 2017Q4. The results showed that after an increase in government expenditures, private consumption and prices take three quarters to increase, while private investment follows the declining trend. Private consumption and interest rate are negatively related with taxes, while private investment and prices are positively related with taxes. Real GDP, private consumption and interest rate respond positively with an increase in developmental expenditure, public consumption and public investment. Private investment is negatively related with development expenditure, public consumption and public investment. An increase in direct tax as well as indirect tax leads to an increase in real GDP, private investment and interest rate, while private consumption takes three to five quarters to responds. Private investment and prices are positively related with non-tax revenue, while real GDP, private consumption and interest rate are negatively related. These results support the Keynesian view that government expenditure and taxes are useful tools to stimulate the economic activity, while crowding-out hypothesis holds in Pakistan as well. An active and efficient role of government is required for macroeconomic stability.

Suggested Citation

  • Kashif Munir & Nimra Riaz, 2019. "Macroeconomic effects of fiscal policy in Pakistan: a disaggregate analysis," Applied Economics, Taylor & Francis Journals, vol. 51(52), pages 5652-5662, November.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:52:p:5652-5662
    DOI: 10.1080/00036846.2019.1616074
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    Cited by:

    1. Kashif Munir & Nimra Riaz, 2020. "Macroeconomic Effects of Exogenous Fiscal Policy Shocks in Pakistan: A Disaggregated SVAR Analysis," Hacienda Pública Española / Review of Public Economics, IEF, vol. 233(2), pages 141-165, June.
    2. Ibrar Hussain & Jawad Hussain & Arshad Ali & Shabir Ahmad, 2021. "A Dynamic Analysis of the Impact of Fiscal Adjustment on Economic Growth: Evidence From Pakistan," SAGE Open, , vol. 11(2), pages 21582440211, June.

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