This treatise studies the discretionary fiscal policy, its size and particularly the impact of discretionary government spending on output, employment level and inflation over the period of 39 years from 1971-72 to 2009-10. The government spending is broken into current expenditures and development expenditures to find, how the changes in government spending under various heads affect the economy. The discretionary fiscal policy is identified through the residual term (based on a fiscal reaction function), political system and market structure. Antonio Fatás and Ilian Mihov (2003) model is amended by including employment level and inflation for quantitative estimates of discretionary policy then this discretion is regressed against output, employment level and inflation variation. The study finds the presence of fiscal discretion but this discretion does not influence the output, employment and inflation significantly. It attempts to highlight the succinct merits and demerits of the debated discretionary fiscal policy for Pakistan economy. Lastly it suggests a political and economically suitable policy frame work to be made available to public policy makers for discretionary policy conduct so that desired influence on economic variables could be achieved. Supervisor:- Dr. Fazal Hussain