The impact of government spending on poverty reduction: Evidence from Pakistan 1972 to 2008

Abstract

This study aims at assessing the impact of government spending in various sectors of the economy on poverty reduction. Time series annual data for the period 1972 to 2008 has been used for analyzing the long-run impact of government spending in education, health, economic and community services, budget deficit and law and order on poverty reduction by using recent econometric development. The results show that government spending on education and law and order significantly contribute to poverty reduction while government spending on budget deficit and economic and community services appeared to be responsible for poverty in Pakistan. The study reveals that government spending in health sector does not have significant impact on poverty reduction. The study recommends that Government of Pakistan should allocate more resources towards education and health sector for the development of human capital. There is a need to reform government institutions like police, judiciary, civil services that may help in reducing poverty. Furthermore government should cut down its wasteful non-development expenditure financed through domestic and foreign borrowing and allocate more resources for developing education, health and infrastructure sectors of the economy. Key words: Government spending, poverty, education, budget deficit, cointegration.