Degree

Master of Science in Economics

Faculty / School

School of Economics and Social Sciences (SESS)

Department

Department of Economics

Date of Submission

2025-10-16

Supervisor

Dr. Waliullah, Professor and Chairperson of Economics, IBA Karachi

Project Type

MSECO Research Project

Access Type

Restricted Access

Keywords

Fiscal policy, fiscal multipliers, government spending, fiscal expenditure, development expenditure, taxes, local projections model, expansionary fiscal policy

JEL Code

H50, E61, E62

Abstract

This thesis aims to empirically estimate fiscal policy multipliers for total government expenditures, current fiscal expenditures, development expenditures and taxes with a view to evaluate implications of fiscal policy interventions for Pakistan economy. Following Ramey and Zubairy (2018), the local projections model of Jordà (2005) has been employed for the purpose, using quarterly data of Pakistan (2001Q3-2024Q4). Alongside linear local projection analysis, we use non-linear local projection estimations to analyze the impact of business cycle on size of fiscal multipliers in Pakistan. To establish justification of expenditure based fiscal policy interventions, value of spending multipliers should be positive and greater than unity. Positive but less than unity spending multipliers imply ineffective fiscal policy while negative values of multipliers imply counterproductive fiscal policy. Our results suggest that the expansionary fiscal policy is either ineffective or counter-productive. We conclude that the Keynesian effects of expansionary fiscal spending do not exist in Pakistan. Conversely, government spending consolidation is likely to foster long-term growth by reducing crowding out and making more credit available to the private sector. Thus, our recommendation is in favor of fiscal consolidation to boost private sector credit, investments and ultimately, the GDP in Pakistan.

Pages

ix, 45

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