Government Spending Multiplier: The Case For Pakistan
Author: Afrasiyab Gul

Despite frequent use of fiscal policy for stabilization and its crucial role played by fiscal activism over the decades, the output response following an exogenous shock to fiscal policy (i.e., budgetary multiplier) has been a hotspot for debate at empirical and theoretical level, both globally and in the Pakistani context. Using military spending as an instrument to establish exogeneity, this study provides new evidence for the effect of government spending on output for the period of 1971-2019. The short-run spending multiplier is estimated to 1.19, that remained positive and significant over the period. Trade openness and gross fixed capital formation is found to have positive association with GDP, whereas interest rate is significant and negative in its impact on GDP. The estimated multiplier value, when compared with tax multipliers, suggest that austerity measures through increase in tax is more harmful than through reduced government spending. Supervisor:- Dr. Muhammad Nasir

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Supervisor: Muhammad Nasir

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