The Dialectical Nature of Economic Growth and Fiscal Decentralization: The Story of Pakistan
DOI:
https://doi.org/10.47672/jde.1242Keywords:
Fiscal Decentralization; Economic Growth; National Finance Commission; Federal Tax; PakistanAbstract
Purpose: This current study aims at finding a connection between fiscal decentralization and the growth of the economy in Pakistan. This paper looked at the different iterations of the National Finance Commission and Riesman award as the two attempts at the distribution of finances to the provinces from the federal government.
Methodology: For the study, Ordinary Least Square (OLS) method with the Engel-Granger co-integration test was applied.
Findings: The results showed that in the longer run, both the desired variables were significant i.e. the ratio of revenue by the provinces to federal revenue, and the transfer of revenue to the provinces was statistically significant and impact the economic growth positively. In the short-run model, the variable of transfer to provinces was statistically insignificant and did not favor decentralization, while the second variable ratio of tax revenue by the provinces to federal tax revenue was statistically significant. This shows that there is potential in the idea of monetary decentralization in Pakistan, but only if it is designed for the long run, not as a short-term fix.
Recommendation: The analysis shows that decentralization shows a significant impact on economic growth in case of Pakistan and the research suggested that the policy should be design for long run rather than short run.
Downloads
References
Akai, N., & Sakata, M. (2002). Fiscal decentralization contributes to economic growth: evidence from state-level cross-section data for the United States. Journal of Urban Economics, 52(1), 93-108. https://doi.org/10.1016/S0094-1190(02)00018-9
Bird, R. M., & Smart, M. (2002). Intergovernmental fiscal transfers: International lessons for developing countries. World Development, 30(6), 899-912.
Davoodi, H., & Zou, H.-F. (1998). Fiscal Decentralization and Economic Growth: A Cross-Country Study. Journal of Urban Economics, 43(2), 244-257. https://econpapers.repec.org/RePEc:eee:juecon:v:43:y:1998:i:2:p:244-257
De Mello, L., & Barenstein, M. (2001). Fiscal decentralization and governance: a cross-country analysis (Issues 2001-2071). International Monetary Fund.
Government of Pakistan. (1991). Report of the National Finance Commission.
Jaffery, N. B., & Sadaqat, M. (2006). NFC awards: commentary and agenda. Pakistan Economic and Social Review, 209-234.
Lin, J. Y., & Liu, Z. (2000). Fiscal decentralization and economic growth in China. Economic Development and Cultural Change, 49(1), 1-21.
Phillips, K. L., & Woller, G. (1997). Does fiscal decentralization lead to economic growth. Department of Economics, Brigham Young University.
Rondinelli, D. A. (1981). Government decentralization in comparative perspective: theory and practice in developing countries. International Review of Administrative Sciences, 47(2), 133-145.
Zhang, T., & Zou, H. (1998). Fiscal decentralization, public spending, and economic growth in China. Journal of Public Economics, 67(2), 221-240.
Downloads
Published
How to Cite
Issue
Section
License
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
