THE IMPACTS OF FLUCTUATIONS IN PUBLIC REVENUE AND EXPENDITURES ON ECONOMIC GROWTH IN PAKISTAN: AN IMPULSE RESPONSE APPROACH

Abstract

Allocation of public revenue among productive and non-productive expenditure and its impact on GDP are not extensively studies in Pakistan. In this study, we examine the relationship between government revenue, productive and nonproductive expenditure and economic growth and sustainability over the period of 1978-2018 with the help of Johansen co-integration, error correction test and Impulse Response Function. The result of the study affirms a significant long run and the short run relationship between the fiscal instruments and the economic growth in Pakistan. Finally, impulse response illustrates that when direct tax is higher than GDP, productive and unproductive expenditures are also increased. It has also been observed some unproductive expenditures smooth the way for the economic growth. For the future better implication of fiscal policy and to achieve economic growth and development Government should take steps to increase its revenue through taxes. Tax collections can be increased by proper utilization of tax revenue and by educating people that tax is the responsibility not the penalty