Fiscal Policy and Income Inequality in Pakistan: An ARDL Approach

Khan, Rana Ejaz Ali; Hashmi, Bushra Jabeen

doi:10.13187/es.2015.13.161

Cited by 5 publications

(5 citation statements)

References 12 publications

(13 reference statements)

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“…The results explain that public spending on health and education reduces inequality, while progressive taxation plays a significant role in income distribution. Khan and Hashmi (2015) investigate the fiscal policy impact on income inequality. They suggest that development expenditures may be helpful to reduce inequality in Pakistan.…”

Section: Literature Reviewmentioning

confidence: 99%

Fiscal Implications for Rural-Urban Income Inequality: The Case of Pakistan

Ahmad¹,

Ali²,

Haider³

et al. 2021

IJEBA

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Purpose: This study investigates the fiscal implications through taxes and total expenditures for rural-urban income inequality in Pakistan. Fiscal policy plays a significant role in stabilizing the macroeconomics variables and equal distribution of income among society. Pakistan is a good case study because there is a dual rural-urban sector that emerges with industrial development and other traditional rural agriculture-based regions. Design/Methodology/Approach: We use time series data with autoregressive distributed lag models (ARDL) for long-run and error correction models (ECM) for short span dynamic co-integration. The above models try to capture the practical effect of fiscal progress on income distribution among modern urban and traditional rural regions. Findings: The findings show that tax side fiscal measures are more harmful to rural-urban income distribution. On the expenditure side, fiscal policy has a significant impact on all disburse income distribution. The most surprising results belong to trade liberalization, it has significantly improved income distribution in urban areas but not in the rurals. Financial development has also verified the accumulation of wealth among rural-urban areas because of the emergence of private profiteering groups in Pakistan. Practical Implications: For policy purposes the government of Pakistan should spend on improving the quality of life of the households by investing in social goods like health, education, and foundation inequality situation may be better off. The nature of public spending and who gains the benefits from this spending decide the nature of inequality. On the supply side, the government should reduce the tax burden for rural households. Originality/Value: The results of the study may improve the rural income distribution if they used properly.

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Section: Literature Reviewmentioning

confidence: 99%

Fiscal Implications for Rural-Urban Income Inequality: The Case of Pakistan

Ahmad¹,

Ali²,

Haider³

et al. 2021

IJEBA

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“…They believed that fiscal policy had a temporary effect on growth and income inequality. However, endogenous growth models open new prospects by looking into the role of fiscal policy in affecting income inequality (Khan and Hashmi, 2015). Empirical evidence advocates that the composition of fiscal consolidation is an element of rising income inequality that causes a deteriorating distribution of income.…”

Section: Introductionmentioning

confidence: 99%

“…These findings suggested that the government can influence the redistribution of income by using effective fiscal policy. Khan and Hashmi (2015) tried to explore the relationship between fiscal policy and income inequality in Pakistan from 1980 to 2012. Results showed that higher government developmental expenditures and financial growth lead to reduced income inequality, whereas fiscal deficit and urbanization increase it in Pakistan.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Consolidation and Income Inequality Nexus: Evidence from Pakistan

Sarwar,

Khan,

Saeed

et al. 2023

J. Econ. Impact

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The distribution of income provides a succinct overview of the economy, revealing how individuals or groups receive specific shares of the national income. Consequently, achieving a fair income distribution has become a central goal for most global economies. The study examines the effect of fiscal consolidation on income inequality in Pakistan. Time series data from 1988 to 2022 is used to estimate the relationship of variables. The ARDL method is used to test the existence of cointegration and to estimate the coefficients of fiscal consolidation and other independent variables. Other variables include minimum wage and trade union density. Per capita GDP and square of per capita GDP are also included in the model to verify the Kuznet hypothesis. The estimates show that fiscal consolidation has a positive impact on income inequality. It implies that if the difference between government expenditures and revenues (i.e., fiscal consolidation) increases, it will enhance income inequality. It may possibly happen by minimizing expenditures or increasing revenues. The empirical results of the study show the existence of an “inverted U-shaped” Kuznet’s curve in Pakistan. Additionally, minimum wage significantly affects income inequality, whereas trade union density is negatively related to income inequality.

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“…In Pakistan, researchers have linked fiscal decentralisation with economic growth, poverty alleviation, government size and public investment (Kang and Arshad 2012;Hussain et al, 2021;Sohail et al, 2021;Hanif and Chaudhry 2015). However, there is a dearth of empirical evidence which specifically links fiscal deficit (fiscal management, public deficit) and FD.…”

Section: Introductionmentioning

confidence: 99%

Decentralisation and Quality of Fiscal Management: Empirical Evidence from Pakistan

Razzaq

Nazir

Shaheen

2022

JoDPRP

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Effective use of public resources is crucial for developing countries facing persistent deficits. Fiscal decentralisation is believed to enhance government efficiency over resource use. Therefore, the paper intends to examine the association between Pakistan’s Fiscal Decentralisation (FD) and Fiscal Management from 1988 to 2020. The authors develop a Composite Decentralisation Index (CDI) that captures the effect of both Expenditure Decentralisation (ED) and Revenue Decentralisation (RD) processes. After confirmation of stationarity through augmented Dickey-Fuller (ADF) and Philip-Peran (PP) unit roots tests, the study employs the Johansen cointegration method to draw longrun estimates. The study’s findings reveal that composite decentralisation reduces public deficit significantly - lower corruption, weaker underground economy, and smaller government size help reduce the fiscal deficit. The Error Correction Term (ECM) is also negative and significant at 1%, which confirms the speed of convergence towards longrun equilibrium in case of any shock or dis equilibrium in the short run. These study findings may help policymakers and legislatures draft effective long-term fiscal management policies.

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Fiscal Policy and Income Inequality in Pakistan: An ARDL Approach

Cited by 5 publications

References 12 publications

Fiscal Implications for Rural-Urban Income Inequality: The Case of Pakistan

Fiscal Implications for Rural-Urban Income Inequality: The Case of Pakistan

Fiscal Consolidation and Income Inequality Nexus: Evidence from Pakistan

Decentralisation and Quality of Fiscal Management: Empirical Evidence from Pakistan

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