The THE IMPACT OF FISCAL POLICY ON SUSTAINABLE ECONOMIC DEVELOPMENT IN PAKISTAN

Abstract

This study observes the effect of fiscal policy actions on Pakistan's economic dynamics. Using data for the variables GDP, Government spending, Budget deficit, Tax revenue and Unemployment from the World Development Indicator (WDI) and the Economic Survey of Pakistan (ESP) for the time span of 1990 to 2022, this research uses VECM and Johansen Cointegration methods for examination within a theoretical and empirical framework. The results reveal a long-term cointegration between GDP and fiscal indicators, particularly government expenses and tax revenues. Over the long-run, government spending and tax revenues show a significantly positive impact on Pakistan's GDP. Though, in the short-run, while government expenses show a positive effect, tax revenues show a negative impact on GDP. On the other hand, budget deficit and unemployment reveal a significant negative impact on Pakistan's GDP growth in the long-run. Though, in the short-run, budget deficit shows a developing positive impact on GDP.