Abstract
The paper examines the correlation between government revenue and
expenditure in Pakistan. Fiscal policy plays a vital role in the economic
development of an economy. Moreover, fiscal regulation on other actions is
important to provide and nourish fiscal discipline for a true policy action. In
order to plan fiscal regulations for a country, reduction in public expenditure
would be coupled with other important variables. The present study is designed
to test the appropriate fiscal policy hypothesis for Pakistan among the following
mentioned hypothesis: Tax-and-expenditure by both Buchanan & Wagner
(1978) and Friedman (1978); the expenditure-and-tax proposition (Lincoln,
1979); the fiscal harmonization (Islam, 2001); and hypothesis of many factors
by Baghestani and Mc-Nown (1994). For data treatment, the co-integration
VAR (Vector Auto-regression) model along with Granger causality test was
used. The results suggest that uni-directional causality from expenditure to tax
proceeds. It also confirms the spend-and-tax hypothesis for fiscal regulation in
Pakistan during 1980-2013. Consequently, uni-directional causality running
from expenditure to tax proceeds. Government expenditure restraints should be
established to control deficit and dipping expenditure. It is an attractive
clarification as compared to enhancing tax to attain optimum financial
regulation in the country. The study will help policy makers to attain fiscal
discipline in the country.
Umar Hayat, Kausar Takrim, Iftikhar Hussain. (2017) An Empirical Analysis of Fiscal Policy Hypothesis: Finding the Most Suitable for Pakistan?, Putaj Humanities And Social Science, Volume-24, Issue-2.
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