This study inspected the influence of government debt on corporate leverage as well as examined effect of government debt on firm’s debt ratio of KSE-100 index sectors enlisted in Pakistan stock exchange, incorporated panel data from 2006 to 2018. Private sectors in Pakistan creates additional revenues for public expenditures and play an important role for the significant growth of the country by generating more income, more employment and additional funding for social services. This study has been estimated by using econometric technique fixed effect linear regression model which is suggested by Hausman test. Two variables are used to measure the corporate leverage (Book leverage, market leverage) and one is used to measure debt ratio (debt-to-capital ratio) and six control variables such as, market-to-book ratio, GDP per capita, inflation unemployment rate, tangibility and return on assets are used to see the impact of government debt on corporate leverage and corporate debt. Government debt helps to execute the public expenditures as well as helps to boost productive capacity of investment in a country while Corporate leverage provides funds to firms of private sectors for investment which may help out to generate more revenue for the public needs. It has been observed form empirical results that government debt adversely connected with corporate leverage and it plays a significant role on debt-ratio. While all other control variables have also significant effect on corporate leverage as well as debt-ratio of firms. These findings are the significant implications for the firm’s financing decisions. The findings recommend that firms should increase internal funding rather than external for investment as well as government should work cooperatively with the investors and offer good policies and protection which must maximize the investment and innovation space in the market so that more goods produce and the more revenues generate. Supervisor:- Dr. Nadeem Ahmad Khan Co-Supervisor:- Dr. Ahsan ul Haq Satti