Fiscal Policy and Income Inequality in Pakistan: An ARDL Approach

PurposeThis study analyzes the impacts of income inequality after direct taxation on the gross domestic product as a fiscal policy tool in the development process.Design/methodology/approachThe model of the study is based on Munielo-Gallo and Roca-Sagales (2013), which examined the fiscal policy, income inequality and economic growth simultaneously. The study uses two models to analyze the relationship between income inequality and gross domestic production under direct taxation by employing autoregressive distributed lag (ARDL) model for selected emerging market economies.FindingEmpirical results reveal a negative long-run relationship between variables in some countries in line with the literature, despite a positive relationship in others. Moreover, the results exhibit the negative impact of income inequality after direct taxation on the gross domestic product decreases.Originality/valueResults of the study highlight the importance of direct taxation on income inequality concerning the reflects on economic growth. It suggests that when the income distribution is fairer, it may positively affect the gross domestic product. The study provides a new perspective to the related literature by investigating the role of income inequality under direct taxation for gross domestic product.

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Growing (un)equal: fiscal policy and income inequality in China and BRIC+

Journal of the Asia Pacific Economy ◽

10.1080/13547860.2019.1699985 ◽

2019 ◽

Vol 25 (4) ◽

pp. 634-653 ◽

Cited By ~ 1

Author(s):

Serhan Cevik ◽

Carolina Correa-Caro

Keyword(s):

Fiscal Policy ◽

Income Inequality

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Reforming China's Public Finances to Sustain Growth

East Asian Policy ◽

10.1142/s1793930514000178 ◽

2014 ◽

Vol 06 (02) ◽

pp. 71-85

Author(s):

Shuanglin LIN ◽

Sarah Y TONG

Keyword(s):

Public Finance ◽

Fiscal Policy ◽

Local Government ◽

Income Inequality ◽

Government Expenditure ◽

Public Spending ◽

Government Debt ◽

Environmental Problems ◽

Policy Initiatives ◽

Taxation System

China's public finance is characterised by a pro-growth taxation system, growth enhancing government expenditure and an expansionary fiscal policy. However, reforms are needed to tackle rising income inequality and worsening social and environmental problems, including more public spending and more progressive taxes. Measures are also needed to resolve rising local government debt. The recently concluded Third Plenum has made these its top priorities and announced various policy initiatives.

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AN ANALYSIS OF THE MANAGEMENT OF FISCAL DEFICIT OF PAKISTAN: AN ECONOMETRIC STUDY OF AUTO-REGRESSIVE DISTRIBUTIVE LAGS (ARDL) APPROACH

The Singapore Economic Review ◽

10.1142/s0217590818500352 ◽

2018 ◽

pp. 1-30 ◽

Cited By ~ 1

Author(s):

KHURRAM EJAZ CHANDIA ◽

MUHAMMAD BADAR IQBAL ◽

SAIRA AZIZ ◽

IFRA GUL ◽

BINESH SARWAR

Keyword(s):

Fiscal Policy ◽

Federal Government ◽

Government Expenditures ◽

Fiscal Deficit ◽

Policy Reforms ◽

Causality Test ◽

Long Run ◽

Ardl Approach ◽

Short Run ◽

Auto Regressive

Fiscal policy is an essential ingredient of economic performance. The fiscal policy is considered as a short-run measure; however, this has long-lasting outcomes for any economy. The current study has examined the connection among different constituents of fiscal policy, i.e., federal government revenues and federal government expenditures; federal government revenues and different components of federal government expenditures; federal government expenditures and different components of federal government revenues and fiscal deficit and influential budgetary variables in the context of the economy of Pakistan. The study has empirically investigated the relationship among the budgetary variables for Pakistan from 1979 to 2017. For data analysis, time-series econometric techniques such as auto-regressive distributive lag (ARDL) approach and Granger causality test have been employed. The results of ARDL bounds test approach suggest the existence of long-run equilibrium relationship among the variables. The result of CUSUM and CUSUMSQ shows the stability of functional relationship tested in this study, which means that model is a useful instrument for policymaking. So, a rise or fall in budgetary variables causes changes in fiscal deficit in long run. The results of study endorse the proof of spent-and-tax hypothesis in the economy of Pakistan. The study suggests the need for extensive fiscal policy reforms in Pakistan.

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