Degree

Master of Science in Economics

Faculty / School

School of Economics and Social Sciences (SESS)

Department

Department of Economics

Date of Submission

2025-11-24

Supervisor

Dr. Muhammad Nasir, Professor, Department of Economics, Institute of Business Administration (IBA), Karachi

Project Type

MSECO Research Project

Access Type

Restricted Access

Keywords

Tax policy, tax elasticity, discretionary changes

JEL Code

H2, H3, C22, E62

Abstract

This study estimates short- and long-term tax buoyancy and tax elasticity for all major categories of taxes imposed in Pakistan between 1982 and 2024. The findings diverge from previous works in the realm of tax responsiveness. First, tax buoyancy and tax elasticity in Pakistan are slightly higher than unity, with buoyancy across all tax categories markedly lower in the short-run than the long-run. This implies that taxes are not good automatic stabilizers in the short run. Second and more critically, discretionary changes in Pakistan are eroding the tax base and have a negative impact on total tax revenue growth in the long-run. This suggests that most of the tax revenue growth in Pakistan has been endogenous, driven by broad macroeconomic factors as opposed to proactive policymaking, one that evidently hampers fiscal sustainability. This finding crucially challenges the efficacy of government’s capacity to mobilize revenues and stresses upon the need for systematic reform programs that focus on eliminating exemptions, curbing politically motivated special tax regimes, plugging leakages and enhancing tax enforcement. Consistent with prior studies, the results further reveal that long-run buoyancy is highest for income taxes, following by sales taxes. In contrast to indirect taxes, direct taxes in Pakistan are both buoyant and elastic (greater than unity). However, because indirect taxes have historically dominated tax revenue collections (68% on average), they ultimately call the shots, exerting a downward drag on aggregate tax buoyancy.

Pages

xi, 52

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