In this study we will assess the impact of fiscal policy on economic growth during the period of 2002-2014. The data of the study will be collected from economic surveys of Pakistan various editions, statistical supplements and Budget documents. To check the stationarity of the data, computer software will be used for a fitting auto-regressive time series model. The study is designed as follows: Literature available on this topic is analyzed in section two, objective of the study, hypothesis of the study, model fitting, source of data, methodology, conclusion and references are presented in chapter three, four, five, six, seven and eight respectively.
Fiscal policy is the effective and practical policy of all governments. Under fiscal policy a government uses its expenses or expenditures (developmental and non-developmental) and revenues (taxes and non-taxes) to produce desirable effects on economic activities and avoid undesirable ones on the national income, production and employment opportunities in a country. It also plays a vital role in the leading overall economic activities. According to F.R.Glahe (1985), “By fiscal policy is meant the regulation of the level of government expenditure and taxation to achieve full employment without inflation in the economy”.
If the mass community of a country have an access to comparatively superior and abundant commodities, if the per capita income is accumulative, if the lives of the public are becoming easier and luxurious and if value added commodities are available in the market over a long period of time then it means that the country is economically growing and economic growth is taking place. As economic growth is a multidimensional phenomenon. It depends upon a large number of macro inputs. It is affected by various variables and lays impact upon different social and economic indicators. Therefore, it becomes laborious and even impossible to analyze behaviors of those variables in a single research. Therefore the researcher decided to see the behavioral changes brought by Total Revenue, Total Expenditure, Current Expenditure, Defense, Interest Payment and Development Expenditure in economic growth. Their impacts are analyzed upon economic growth.
Contents
Chapter 1 Introduction ... 1
Chapter 2 ... 2
2.1 Introduction ... 2
2.2 Review of Literature ... 2
Chapter 3 Objective and Hypothesis ... 8
3.1 Objectives of the Study ... 8
3.2 Hypothesis of the Study ... 8
3.3 Significance of the Study ... 8
Chapter 4 Theoretical Framework ... 9
4.1 Introduction ... 9
4.2 Model Fitting ... 9
4.3 General Form of the Model ... 9
4.4 Description of the Variables ... 10
4.5 Methodology ... 11
4.6 Stationarity of Variables ... 11
4.7 Link between Dependent and Independent Variables using T-statistics ... 12
4.8 Data Sources ... 12
Chapter 5 Summary, Conclusion and Policy Recommendations ... 13
5.1 Introduction ... 13
5.2 Summary ... 13
5.3 Conclusion ... 13
5.4 Policy Recommendation ... 13
Chapter 6 References ... 15
Appendices ... 20
CHAPTER 1
INTRODUCTION:
Fiscal policy is the effective and practical policy of all governments. Under fiscal policy a
government uses its expenses or expenditures (developmental and non-developmental) and
revenues (taxes and non-taxes) to produce desirable effects on economic activities and avoid
undesirable ones on the national income, production and employment opportunities in a
country. It also plays a vital role in the leading overall economic activities. According to
F.R.Glahe (1985), "By fiscal policy is meant the regulation of the level of government
expenditure and taxation to achieve full employment without inflation in the economy". If
the mass community of a country have an access to comparatively superior and abundant
commodities, if the per capita income is accumulative, if the lives of public are becoming
easier and luxurious and if value added commodities are available in the market over a long
period of time then it means that the country is economically growing and economic growth
is taking place.
As economic growth is a multidimensional phenomenon. It depends upon large number of
macro inputs. It is affected by various variables and lays impact upon different social and
economic indicators. Therefore, it becomes laborious and even impossible to analyze
behaviors of those variables in a single research. Therefore the researcher decided to see the
behavioral changes brought by Total Revenue, Total Expenditure, Current Expenditure,
Defense, Interest Payment and Development Expenditure in economic growth. Their impacts
are analyzed upon economic growth.
In this study we will assess the impact of fiscal policy on economic growth during the period
of 2002-2014. The data of the study will be collected from economic survey of Pakistan
various editions, statistical supplements and Budget documents. To check the stationarity of
the data computer software will be used for fitting auto-regressive time series model. The
study is designed as follow. Literature available on this topic is analyzed in section two,
objective of the study, hypothesis of the study, model fitting, source of data, methodology,
conclusion and references are presented in chapter three, fourth, fifth, sixth, seventh and eight
respectively.
1
CHAPTER 2
2.1 Introduction
The literature review focuses on both general and empirical studies carried out to study the
relationship between fiscal policy and economic growth.
2.2 Review of Literature
Giavazzi and Pagano (1990), were the first economists who initiated research on fiscal policy
and economic growth. They studied Sweden and Ireland economies. They observed that
fiscal policy brings expansionary changes in economic growth. This expansionary impact is
caused by an increase in the private consumption expenditures. They channelized these
economics in four categories i.e. substitution channel, interest rate channel, tax channel and
inflation channel.
Taxation and government expenditures are two major tools of fiscal policy. On the other hand
it is used for increase in government revenue and on the other hand it helps in the promotion
of employment by bringing increase in consumption power.de Cos and Moral-Benito
(2013),and Barro and Sahaskul (1993), concluded that taxation has four main functions i.e.
Revenue, Redistribution, Re-pricing, and Representation. The immediate objective of a tax is
to raise to be spent on hospitals, roads, schools, and on more indirect government functions
like market regulation or legal system. This is the most widely known function.
Redistribution usually stands for transferring wealth from the richer sections of society to
poorer sections. A third purpose is re-pricing. Taxes are levied to address externalities:
tobacco is taxed, for example, to discourage smoking, and many people advocate policies
such as implementing a carbon tax. A fourth effect of taxation in its historical setting has
been representation. Marginal tax rates and subsides are the most important obstacles to have
an excess to their respective conclusions and representation.
Fiscal policy matters economic growth or not. It has been a hot debate among economists
from time to time. Neoclassical economists believe that fiscal policy do not matter economic
growth in the long run. But they argue that it can affect the level of economic growth. Barro
and Sala-i-Martin (1992),and Barro (1990), did not agree with neoclassical economists. They
argue that fiscal policy can affect level of output as well as growth in the long run. Many
2
economists like Levin and Renelt(1992), Xu (1994), Engen and Skinner (1996), and Barro
(1990), proved that single variable including Tax cannot effect growth process. But many
economists like Derin (2003), Shantayanan et al. (1993), Bleaney et al. (2001), Kneller et al.
(1999), Devarajan.et al. (1996),Gupta et al. (2005), Benos (2004), Ghosh and Gergoriou
(2006), argued that taxation and expenditure not only matters but it variates economic
growth.
Mitchell (2005), argue that government programs provide valuable (public goods) such as
education and infrastructure. They further say that increase in government spending can give
boost to economic growth by concentrating into people's pockets. Some economists propose
that government is too big and that higher spending hinders economic growth by transferring
additional resources from productive sector of the economy to government, where resources
are wasted. Levine and Renelt (1992), and Germell (1999), opined that fiscal policy variables
are generally non-fruitful when included in cross-country growth regression. Friedman
(1977), stressed upon the fact that economic growth must be ensured by joint venture of
government spending and expenditure and taxes. If those variables are applied in economic
activities separately and independently, then its output will be encouraging. Levine and
Renelt (1992), also favored the Friedman opinion.
Alesian and Ardagna (1998), and Alesian and Perotti (1995), highlighted Muhammad Azhar,
Muhammad Zahir Khan and Khalid Zaman opinion about the size and persistence of the
budget composition and fiscal impulse can be used for explaining different private sector
responses to fiscal policy and their effect on economic growth. Tanzi and Zee, (1996), Iqbal
(1995), Khilii and Mahmood (1997), Shabbir and Mahmood (1992), and Iqbal (1994),
focused their research upon the potential impacts of structural adjustments. The impact of real
growth in output on economic growth. They concluded that independent brought negative
discouraging and deteriorating impacts upon economic growth.
Iqbal (1995), examined macroeconomic constraint upon Pakistan economy. They observed
that foreign demand real devaluation and capacity utilization exerted an accelerated pressure
on economic growth rate of real GDP in Pakistan. Khilji and Mahmood (1997), observed that
expenditures are negatively related to GDP growth. Shabbir and Mahmood (1992), proved
that foreign private investment has significant positive effects on the rate of growth of real
GNP, while three other explanatory variables namely, exports, loans and external grants have
a positive but statistically insignificant impact on real GNP growth.
3
Rehman et al (2010), examines Pakistan economy. The result explores that there is a
unidirectional causality running from GDP to government expenditure, which supports the
Wagner's Law. Rustam et al (2012), examine the impact of fiscal variables on price level in
Pakistan. The result shows that if there is one percent increase in budget deficit, price level
increases up to 0.11 percent. It shows that high fiscal deficit affects inflationary expectations
in the long-run. Again, Ijeh (2008), refer to fiscal policy as government action plan
concerning how to raise funds and disburse funds. Bhatia (2008), noted that fiscal policy
consists of steps and measures which the government takes both on the revenue and
expenditure sides of its budget and that it is the aggregate effects of government expenditures
and taxation on income, production and employment. Buhari (1993), argued that fiscal policy
is concerned with deliberate actions which the government of a country take in the area
spending money and or levying taxes with the objective of influencing macroeconomic
variables such as the level of national income or output, the employment level, aggregate
demand level, the general level of prices etc in a desired direction. Dwivedi (2009), stated
that it is government's program of taxation, expenditure and other financial operations to
achieve certain national goals. Bhatia (2008), stressed that when an economy is leading
towards stability, investment decisions are more favorably affected because expenditure does
not fall below certain minimum level and forms a cushion against economic contraction.
Babalola and Aminu (2011), studied link of fiscal policy and economic growth in Nigeria.
They opined that productive expenditure was statistically significant.
Hogan (2004), analyzed previous studies in the domain of fiscal policy and economic growth.
He highlighted the draw backs and short comings of those studies that used paved data. He
proved that expansion in private consumption is not enough to break the stagnancy of
contractionary impact of public consumption in an economy.de Cos and Moral-Benito
(2013), research supports Keynes opinion. He observed negative impact of fiscal policy
consolidation on economic activities. Mahran (2005), proved that the effect of fiscal policy
can also be used to enhance and retrieve a stagnant economy. In developing economy the
causal relationship between growth in the domain of per capita GDP on the one hand, and
quantitative fiscal adjustment i.e. wages and salaries, social services such as education and
health, improvement in fiscal balance and sources i.e. domestic and foreign. State
intervention in economic activities is mostly favored in many developing economies of the
world.
4
Appah (2010), in his study of the relationship between fiscal policy and economic growth in
Nigeria, took gross domestic product as proxy for economic growth and government debt,
government capital expenditure, tax revenue, government recurrent expenditure, expenditure
budget and government capital expenditure budget saw significant relationship between fiscal
policy variables jointly and economic growth and that the specific variables contributing to
the GDP are government recurrent and capital expenditures. Medee and Nendee (2011), used
gross domestic product as the dependent variable and Federal government expenditure,
Federal government revenue, inflation rate and capital inflow as the regressors proved that
there exists long run equilibrium relationship between fiscal policy variables and economic
growth in Nigeria.
CBN (2010), and the International Monetary Fund (2009), argued that economic growth is
the outcome of an increase in real gross domestic product. On the other hand Dwivedi (2008),
opined that economic growth can be seen in the domain of capital formation, labor force,
natural resources, technological development, social and political factors. Riley (2012), draw
conclusions from other variables i.e. increase in the quality of human capital and in labor
force available for production. Jhingan (1997), opined that government can use other factors
as variable of economic growth. He believes that change in tax rate keeping government
expenditure constant causes economic growth positively. Devarajan.et al. (1996), used pooled
data for 43 developing countries and analyzed the impact of structure of government
expenditures to economic growth. They grouped public expenditures into further productive
and non-productive expenditures. They considered communication as capital expenditures,
health, transport, defense and education. The empirical results were very astonishing because
they saw that capital expenditures have significant and negative impact on economic growth
whereas current (non-productive) expenditures have positive and significant influence on
economic growth in developing countries. The negative impact of capital expenditures was
due to excessive non-developmental expenditures towards productive expenditures at the
expense of non-productive expenditures.
Derin (2003), focused his research upon 33 developing countries and 15 developed European
economies. He concluded that investment and per capita GDP are positively correlated with
growth, whereas taxation has negative and significant impact in EU counties while it has
insignificant relation in case of developing countries. In this study it is suggested that
distortionary taxation does not accumulate long run growth in developing economies.
Whereas productive expenditures have negative and significant impact in developing
5
countries while it has insignificant relation in case of EU countries. So the policy focused on
productive expenditures is fruit bearing in case of developing countries.
Gupta et al. (2005), analyzed fiscal policy link with growth focusing upon low income
countries. He studied economies of 39 low income countries. He concluded that fiscal policy
is affected both in short run as well as long run. Ghosh and Gergorious (2006), analyzed
paved data for 15 developing countries. Their findings supported Devarajan. et al. (1996),
conclusions. Kukk (2007), research proved that fiscal policy bears positive impact upon
economic growth. Martin and Fardmanesh (1990), analyzed the relationship among
expenditures, taxation, deficit and economic growth taking cross-sectional data of 76
developing and developed countries. They proved that government expenditures had positive
impact on economic growth subject to the condition that government expenditures might not
exceed budget deficit if government expenditures are greater than the budget deficit then they
had negative effect on economic growth. Taxes also had negative impact on economic growth
but they stimulated it if they helped in decreasing the budget deficit. They further argued that
level of development in countries also mattered for fiscal policy to impact economic growth.
Gerson (1998), analyzed the relationship between fiscal policy and economic growth.
There are some reasons that highlight the differences and even contradictions among the
conclusions of different researchers. The researchers have focused their studies upon different
countries, taking different datas and using different models and soft wares. These differences
are categorized as under;
Different researchers have analyzed different variables for fiscal development. Akai
and Sakata (2002), criticized research of those economists who showed negative link
between fiscal policy and growth. He believed that those economists have analyzed
wrong data.
The differences in conclusions based on cross section data may be affected by
geographical, cultural, social, political and religious conditions. Although conclusions
of researchers taking simple country also differs from each other e.g. Nguygen and
Anwar (2011); Malik, et.al. (2006); Akai and Sakata (2002); Carrion-i-Silvestre, et al.
(2008); Samimi, et al. (2010). Many researchers found positive and significant
relationship between FD (fiscal development) and economic growth [Oates (1995);
Yilmaz (1999); Thiessen (2003); Limi (2005)]. However, various other studies, have
observed a negative or even no relationship between FD and economic growth [Oates
6
(1972, 1985); Davoodi and Zou (1998); Woller and Phillips (1998); Martinez-
Vazquez and McNab (2006); Thornton (2007); Baskaran and Feld (2012); Rodriguez-
Pose and Ezcurra (2010)] studies showed positive link whereas study of Akai and
Sakata (2002), showed negative result.
The fiscal development status of different countries differs from each other.
Some studies shows reverse causality e.g. Thiessen (2003); Jin, et al. (2005); Lin and
Liu (2000), and Zhang and Zou (1998); Xie, et al. (1999).
Existing literature neglats existing political conditions and status of different
countries. Therefore their respictive datas and hence conclusion will never match with
each other.
7
CHAPTER 3
OBJECTIVE AND HYPOTHESIS
3.1. Objectives of the Study
The objectives of this study are summarized as under;
To examine the impact of fiscal policy on economic growth in Pakistan in the
perspective of total revenue, total expenditure, current expenditure, defense, interest
payments, and developmental expenditure.
To know about the magnitude of the link between fiscal policy and economic growth.
To base policy recommendation on its conclusion.
3.2. Hypothesis of the Study
As this study shows link between fiscal policy variables with economic growth. Therefore the
hypothesis of the study is as under;
1. H
0
: Fiscal policy does not cause economic growth.
2. H
1
:
Fiscal policy causes economic growth.
3.3. Significance of the Study
This research will explore link between fiscal policy and economic growth. It will highlight
the link whether it is positive or negative or the fiscal policy stays neutral in influencing
economic growth. The study will be helpful in policy making and policy recommendations. It
will highlight those sectors of economic activities that will pave ways for economic growth.
This study will give numerical and scientific results. Hence it will be practically applicable
for policy makers.
8
CHAPTER 4
THEORETICAL FRAMEWORK
4.1: Introduction
This chapter describes theoretical model, empirical model and the research design. The
research design reveals the type of data and the method of data collection.
4.2: Model Fitting
T-statistics and Anova Two way classification are applied to decide the relationship between
Fiscal Policy and economic growth of time series variables.
b -
0
S
b
Which is T distribute with µ=n-2 d.f
4.3: General Form of the Model
There are different studies related to fiscal policy and economic growth in the literature.
Different researchers have used different variables which affect economic growth and related
fiscal policy also. In this paper we used the following variables.
Economic Growth = f (fiscal policy).
Where economic growth is dependent variable while fiscal policy is independent variable.
Other variables will be as under;
Economic Growth = f (Total Revenue, Total Expenditure, Consumption Expenditure,
Defense, Interest Payment, Development Expenditure) ---------------------------(1)
The detail form of the mathematical model will be
Eco; Growth = f (TR, TE, CE, DFNS, IP, DE) ----------------------------------------(2)
9
The econometric form of equation 2 will be
Eco;Growth =
0
+
1
TR
+
2
TE +
3
CE +
4
DFNS +
5
IP +
6
DE + ------------------(3)
4.4:
Description of the Variables
0
=
Intercept of the model
TR
=
Total Revenue
TE
=
Total Expenditure
CE
=
Consumption Expenditure
DFNS =
Defense
IP
=
Interest Payment
DE
=
Developmental Expenditure
=
error term
10
4.5:
Methodology
The main purpose of this research is to investigate relation between Fiscal Policy and
Economic Growth of Pakistan. The study uses annual time series data sets for the period of
2002-2014.
Test for stationarity of data, X (t +1) = 0 + 1X (t) + t,
The data is stationarity, based on autoregressive order one obtained from a given time series:
X (t +1) = 0 + 1X (t) + t,
Where t is a White-Noise series. Note that, the stationary condition: | |<1
T-Statistics
F-Statistics (Anova one way)
µ
x.y
=
x
+
i
+
=Intercept of the line
H
0
: Fiscal Policy does not cause Economic Growth
H
1
: Fiscal Policy causes Economic Growth
=
Test Statistics
b -
0
S
b
Which is T distribute with µ=n-2 d.f
4.6:
Stationarity of Variables
In this study stationarity of variables was tested by fitting auto-regressive time series model
using computer software. The dependent variable was found stationary. The mean and
standard deviation of the data was close to stagnance. All of the independent variables Total
Revenue, Total Expenditure, Consumption Expenditure, Defense, Interest Payment and
Developmental Expenditure were analyzed individually. These variables were found
stationary because the data was secondary, filtered and differentiated. In this study it was
found that the data is fit for using computer software processing.
11
4.7: Link between Dependent and Independent Variables using T-statistics
All of the independent variables were individually linked with dependent variable. It was
interesting and astonishing when we saw very strong individual impacts of Total Revenue,
Total Expenditure, Current Expenditure and Defense. These variables strongly cause
economic growth. Their respective strong T-values i.e. 13.4501, 18.1956, 13.9077, -2.8910
explored the fact that strong link between these variables exists, on the other hand F-statistics
of these variables gave slightly different results in case of some variables. Total Revenue,
Total Expenditure, Current Expenditure and Defense gave 8.9125, 1.9477, 2.3983, and
39.2997, respectively. Those variables explored strong link. On the other hand T-values of
Interest Payment and Developmental Expenditure gave poor and little or no real link between
the dependent and independent variables.
4.8:
Data Sources
The data is collected from "Economic survey of Pakistan" various editions, and "Statistical
supplement".
12
CHAPTER 5
SUMMARY, CONCLUSION AND POLICY RECOMMENDATIONS
5.1 Introduction,
This chapter summarizes the study and makes conclusion based on the results. The policy
implications from the findings are also presented.
5.2 Summary,
In this study analysis of different economists spread over the whole world has been analyzed.
The outcome of those studies is partially accumulative and partially contradictory to each
other. Differentiation in some of those studies is also seen. This study concluded with the
remark that nearly all independent variables Total Revenue, Total Expenditure, Current
Expenditure, Defense, Interest Payment, and Developmental Expenditure are positively
correlated with dependent variable Economic Growth (GDP). The T-statistics result explored
the fact that causal link between those variables is very strong.
5.3 Conclusion,
The finding of this study is either in parity with studies of Jhingon(1997), Derin(2003), and
Kukk(2007) supportive in accumulative to them. Total Revenue, Total Expenditure, Defense
and Developmental Expenditure unveiled the fact Economic Growth can be ensured by
bringing positive change is those variables. Interest Payment gave comparatively inferior link
with economic growth. It is also supportive to economic growth. As a whole it is seen that in
Pakistan variables considered in this research must be paid greater head.
5.4 Policy Recommendation,
Pakistan is a developing country whose case studies explored various realities and unveiled
those facts that were beyond considerations. On the basis of this research the following
recommendations are put forth not only Pakistan policy makers but for all of the developing
countries.
1. All of those resources that can give stir to economic growth must be exploited. It will
cause an increase in Total revenue or a result economic growth will be ensured.
13
2. Total Expenditure ensure economic growth, Developmental Expenditure must be
highly concentrated. It utilizes natural and human resources can exploit expert and
thus economic prosperity will be ensured.
3. Current Expenditure and Defense can cause growth either directly or indirectly.
Strong Defense can convince foreign direct investment that will lead towards growth.
The summation of these variables linked with growth although gave poor results, but
it is clear that different independent variables loosen mutual impact.
The sector highlighted in this study needs utmost concentration and importance. It can
accelerate economic growth; as a result smooth working of the society will be
ensured.
14
CHAPTER 6
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19
Table (1) Autoregressive Time Series Modeling
Variable
Mean
X(t)
Variance
X(t)
Auto
relation
Auto
relation
standard
error
Paramet
er F1
Paramete
r F1
standard
error
Paramet
er F 0
Parameter
F 0
standard
error
Total revenue
13.6909
0.5026
0.3421
0.2971
0.31568
0.289
9.33252
3.96158
Total
Expenditure
18.9454
2.4570
0.46929
0.27924
0.4754
0.29818
10.07492
5.66691
Current
Expenditure
15.21818
2.01966
0.43782
0.284308
0.432195
0.295836
8.613675
8.520051
Defense
2.7727
0.120165
0.929295
0.11679
0.83218
0.1102474 0.39257
0.30786
Interest
Payment
4.2454
0.302479
0.472088
0.27877
0.4587
0.2855
2.279699
1.22155
Developmental
Expenditure
3.8181
0.6633
0.40761
0.28876
0.34363
0.256603
2.75158
0.99998
20
Table (2) Showing T-values, F-values and Durbin Watson
Dependent
variable
Independent
variable
T-test
values
F-test values
Durbin Watson
Total Revenue
13.4501
8.91258
1.65222
Total Expenditure
18.1956
1.94771
1.96687
Current Expenditure 13.90775
2.39836
1.29452
Defense
-2.89105
39.29976
1.61034
Interest Payment
-0.54025
15.86831
1.05673
Economic
Growth(GDP)
Developmental
Expenditure
-1.04947
6.52713
1.97903
21
Table (3) the link between Dependent and Independent Variables
Dependent
Variable
Independent
Variable
Mean 1
Mean 2
Variance 1
Variance 2
T-Statistics
F- Statistics
Total Revenue 13.758333 4.6333333
0.557197
4.9660606
0.00025
13.4501104
Total
Expenditure
19.033333 4.6333333
2.549697
4.9660606
0.00025
18.1956148
Current
Expenditure
15.283333 4.6333333
2.0706061
4.9660606
0.00025
13.9077457
Defense
2.75 4.6333333
0.1263636
4.9660606
0.007585
-2.8910495
Interest
Payment
4.275 4.6333333
0.3129545
4.9660606
0.2997
-0.5402582
Economic
Growth
(GDP)
Development
Expenditure
3.9083333 4.6333333
0.7608333
4.9660606
0.15612
-1.0494677
Calculation are based on computer software "Two Test Population"
22
Table (4) Relation
between Dependent and Filtered Independent Variables
Year
Dependent
variable
Independent Variables
GDP
TR
TE
CE
DFNC
IP
DE
6
i=1
2002-03
4.7
1
0.2
1.2
0.2
-0.1
-1.1
1.4
2003-04
7.5
-0.6
-1.8
-2.8
0
-0.8
0.9
-5.1
2004-05
9
-0.5
0.5
-0.2
0
-0.6
0.8
0
2005-06
5.8
-0.7
-0.1
-0.7
-0.4
-0.2
0.6
-1.5
2006-07
5.5
0.9
1
2.3
-0.2
1
0.1
5.1
2007-08
5
0.1
3.3
2.5
-0.1
0.6
-0.6
5.8
2008-09
0.4
-0.1
-2.2
-1.9
-0.1
0.2
-0.3
-4.4
2009-10
2.6
0
1
0.5
0
-0.6
0.7
1.6
2010-2011
3.6
-1.7
-1.3
-0.1
0
-0.5
-1.6
-5.2
2011-2012
3.8
0.5
0.7
-0.3
0
0.6
0.9
2.4
2012-13
3.7
0.5
1.9
0.8
-0.1
0
1.4
4.5
2013-14
4
1.2
-1.5
-0.4
0.1
0.1
-0.2
-0.7
12
TR=0.6
i=1
12
TE=1.7
i=1
12
CE=0.9
i=1
12
DFNC=-0.6
i=1
12
IP=-0.3
i=1
12
DE=1.6
i=1
23
GRAPHICAL REPRESENTATION
Graph (1) Economic Growth and Total Revenue
Graph based on Computer Program MS-Excel
Graph (2) Economic Growth and Total Expenditure
Graph based on Computer Program MS-Excel
2002-032003-042004-052005-062006-072007-082008-092009-102010-112011-122012-132013-14
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2
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Economic Growth
Total Revenue
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
0
5
10
15
20
25
Economic Growth
Total Expenditure
24
Graph (3) Economic Growth and Current Expenditure
Graph based on Computer Program MS-Excel
Graph (4) Economic Growth and Defense
Graph based on Computer Program MS-Excel
2002-032003-042004-052005-062006-072007-082008-092009-102010-112011-122012-132013-14
0
2
4
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8
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14
16
18
Economic Growth
Current Expenditure
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
0
1
2
3
4
5
6
7
8
9
10
Economic Growth
Defense
25
Graph (5) Economic Growth and Interest Payment
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
0
1
2
3
4
5
6
7
8
9
10
Economic Growth
Interest Payment
Graph based on Computer Program MS-Excel
Graph (6) Economic Growth and Developmental Expenditure
2002-032003-042004-052005-062006-072007-082008-092009-102010-112011-122012-132013-14
0
1
2
3
4
5
6
7
8
9
10
Economic Growth
Developmental Expenditure
Graph based on Computer Program MS-Excel
26
Frequently asked questions
What is the study about?
The study assesses the impact of fiscal policy on economic growth, particularly focusing on the case of Pakistan between 2002 and 2014. It analyzes the relationship between economic growth and several fiscal variables.
What fiscal policy variables are considered in the study?
The study considers the following independent variables: Total Revenue, Total Expenditure, Current Expenditure, Defense spending, Interest Payments, and Developmental Expenditure.
What is the methodology used in the study?
The methodology includes testing for the stationarity of data using autoregressive time series models. T-statistics and ANOVA are used to determine the relationship between fiscal policy and economic growth. Computer software is used for analysis.
What is the hypothesis of the study?
The study tests the following hypothesis:
- H0: Fiscal policy does not cause economic growth.
- H1: Fiscal policy causes economic growth.
What data sources were used?
Data was collected from the Economic Survey of Pakistan (various editions), statistical supplements, and budget documents.
What are some of the literature reviews mentioned in the HTML Document?
The literature review includes studies by Giavazzi and Pagano (1990), de Cos and Moral-Benito (2013), Barro and Sahaskul (1993), and Barro (1990), Levin and Renelt(1992), Xu (1994), Engen and Skinner (1996). Other economisits include: Derin (2003), Shantayanan et al. (1993), Bleaney et al. (2001), Kneller et al.(1999),Devarajan.et al. (1996),Gupta et al. (2005), Benos (2004), Ghosh and Gergoriou (2006), Appah (2010), Medee and Nendee (2011), Hogan (2004), Mahran (2005) and others.
What are the policy recommendations suggested?
Policy recommendations include:
- Exploiting resources that stimulate economic growth.
- Concentrating on developmental expenditures for economic growth.
- Considering current expenditure and defense spending's potential impacts on growth.
What are the key findings about the relationship between individual fiscal policy variables and economic growth?
Total Revenue, Total Expenditure, Current Expenditure, and Defense spending showed strong individual impacts on economic growth according to T-values. Interest Payment and Developmental Expenditure exhibited weaker links.
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- Ruman Khan (Author), 2016, The impact of fiscal policy on economic growth. A case Study of Pakistan (2002-2014), Munich, GRIN Verlag, https://www.hausarbeiten.de/document/337248
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