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A juxtaposition of Tax Expenditures and Direct Expenditures: Case Study of Pakistan

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  • Shabbar, Shagufta
  • Ahmed, Qazi Masood
  • Pasha, Farooq

Abstract

One of the objectives of the government is to boost the level of investment in the economy. With limited fiscal space little attention is paid to the effective usage of tax expenditures. This paper evaluates government’s options of tax expenditures and direct expenditures to augment private investment in Pakistan. The data from the Manufacturing Sector of Pakistan for a period of 1972 to 2013 is used in a bounds testing approach of Autoregressive Distributed Lag model. The empirical evidence shows a strong role of direct expenditure in influencing both short-run and long-run behavior of investment in the economy. The results further demonstrate that under low inflation the tax expenditure policy is more important determinant of private investment, however, in high inflation periods, direct expenditure is found to be more potent.

Suggested Citation

  • Shabbar, Shagufta & Ahmed, Qazi Masood & Pasha, Farooq, 2018. "A juxtaposition of Tax Expenditures and Direct Expenditures: Case Study of Pakistan," MPRA Paper 117419, University Library of Munich, Germany, revised 2018.
    • Handle: RePEc:pra:mprapa:117419
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    More about this item

    Keywords

    Investment; cost of capital; tax expenditure; ARDL; Pakistan.;
    All these keywords.

    JEL classification:

    • H00 - Public Economics - - General - - - General
    • H1 - Public Economics - - Structure and Scope of Government
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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