Fiscal decentralization and poverty alleviation: A case study of Pakistan

Abstract

AbstractAccording to the World Bank, the COVID‐19 pandemic is going to exacerbate the situation of poverty. It predicts that the poverty rate could rise by 0.3 to 0.7 percentage points, to around 9% in 2020. This study aims at providing insights into poverty in Pakistan and analyzes the impact of fiscal decentralization on poverty alleviation. According to the Asian Development Bank, Pakistan houses roughly 210 million poor people. This study follows the data between 1975 and 2018, applying a unit root test to station this data. The statistical models are developed with a view to the autoregressive distributed lag co‐integration technique for estimation. The findings of the study conclude that fiscal decentralization has a direct and indirect impact in eradicating poverty. We thus conclude that the government should provide autonomy to the provinces in Pakistan, as the central government alone cannot tackle and understand the local problems. Therefore, the government must adopt a fiscal decentralization policy. This study further suggests that the government should effectively utilize the progressive taxation strategy to maximize revenues and cater to poverty alleviation.