What Matters for Economic Growth in Pakistan: Fiscal Policy or its Composition?

Abstract

This study employed autoregressive distributed lag (ARDL) model to examines the impact of various fiscal policy variables, such as, productive expenditures, non-productive expenditures, distortionary taxes and non-distortionary taxes on economic growth in Pakistan in the framework of endogenous growth model. Our results revealed that non-productive expenditures and non-distortionary taxation have neutral impact on economic growth in both the long run and short run. Productive expenditures affect economic growth positively and significantly. Distortionary taxes retard economic growth. Human capital proxied by secondary school enrollment enhances per capita GDP. Impact of labor force on GDP per capita is negative and insignificant.