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Impact of Fiscal Policy on Pakistan's GDP: How Much and How Long?

Author

Listed:
  • Shahzad Ahmad

    (State Bank of Pakistan)

  • Waliullah

    (Institute of Business Administration)

Abstract

Implications of fiscal policy for Pakistan’s GDP have been evaluated through estimation of fiscal multipliers based on quarterly structural vector autoregressive models. Estimation results show that government consumption multiplier is positive only for initial two quarters and has a peak value of only 0.6. Government investment multiplier, initially depicting a weak and cyclical behavior, reaches a peak value of 1.5 in the eighth quarter. Net tax multiplier remains negative for initial five quarters. Subsequently, the stabilizing effects of consolidating fiscal policy exceed the initial output costs and the net tax multiplier becomes positive to attain its peak value of 1.12 in 13th quarter. These results confirm that the use of consumption based expansionary fiscal policy to boost real GDP growth has no empirical support in case of Pakistan.Fiscal consolidation has positive effects on medium term growth outcomes.

Suggested Citation

  • Shahzad Ahmad & Waliullah, 2025. "Impact of Fiscal Policy on Pakistan's GDP: How Much and How Long?," SBP Working Paper Series 117, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:117
    as

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    File URL: https://www.sbp.org.pk/publications/wpapers/2025/117.pdf
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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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