THE IMPACT OF FISCAL POLICY ON ECONOMIC GROWTH: EVIDENCE FROM ECONOMY OF PAKISTAN

Abstract

There is a growing interest among researchers in analyzing the relationship between fiscal policy and economic growth. The theoretical and empirical studies across many countries have laid groundwork for understanding this emerging phenomenon, providing solid foundation for further exploration of fiscal & economic dynamics. The major justification is given by economic and business analysts who showed inverse relationship between economic growth and fiscal policy. The current analysis evaluated the formulation of different fiscal policies and economic growth based on important variables consisting of government expenditures, tax revenue, and foreign debt. In addition, existing research created a strong connection between economic growth and fiscal policy, has proved to be confusing for the sake of positive and negative approaches. The findings indicate that both tax revenue and government expenditure, have a significant positive impact on economic growth whereas public debt has a significant negative impact on economic growth. These results confirm the effectiveness of fiscal policy on economic growth of Pakistan, highlight the need for policymakers to adopt reliable fiscal measures.