Does Fiscal Policy Matters for Growth? Empirical Evidence from Pakistan

The present study is designed to investigate the short and long run impact of fiscal strategy variables on GDP growth of Pakistan by employing Johanson co-integration technique and ECM. Data on GDP per capita, per capita real public revenues, government final consumption expenditures, discount rate, trade openness, and gross fixed capital formation has been gained from various sources like world development indicators, FBS Pakistan and the economic survey of Pakistan (various sources). In long run government consumption expenditures and public revenues both are affecting GDP significantly with negative and positive coefficients respectively. Moreover ECM indicates that approximately 37% of the disequilibrium error is corrected in each period which is a good speed of convergence. The Reduction of government consumption expenditures and enhancing revenue generation efficiency is recommended for better outcomes of fiscal policy in Pakistan.