ABSTRACT

The Study discusses fiscal decentralization and its impact on economic growth and stability in an analysis of many policies that are in exercise for decentralization. 18th amendment has fulfilled the requirements of self-rule and shared rule in Pakistan. The two federal conceptions were the set parameters to approach the 18th constitutional amendment in Pakistan. This historical amendment has converted the entire federal political system to one decentralized and participatory. The federal system was highly centralized and less participatory before the amendment. In the framework, the empirical evidence suggests that fiscal decentralization will have to affect the economic growth in the long-run only where the provinces are allowed and incentivized for higher own source revenue generation on the other higher federal transfer (another important source of fiscal decentralization) only had short-run effects for the economic stability and growth in the case of Pakistan. While the descriptive analysis of the study discusses the expenditure decentralization and growth expenditure decentralization can lead to higher corruption in the local government for many reasons. Expenditure decentralization makes subnational governments more autonomic in providing public services and projects. As argued above “expenditure decentralization promotes economic growth but lack of governor’s system reduce it.