Political Economy of Fiscal Deficit Volatility: The Case Study of Pakistan
Author: Abdul Qadeer

This study aims to investigate the influence of various politico-economic variables on fiscal deficit volatility (FDV) using structural equation modeling (SEM). The impact of various observed and unobserved variables on fiscal deficit volatility has been analyzed as a case study of Pakistan over the period of period of 1983-2018. The empirical findings of current study include the negative significant impact of governance effectiveness as well as degree of democracy on FDV. Per capita income is positively associated with observed phenomenon. Political instability has insignificant direct impact, contrary to previous studies, while significant indirect impact mediated through macroeconomic volatility (MEV) on FDV. In case of financial market volatility, partial mediation takes place and there is significant direct and indirect impact on fiscal deficit volatility. Macroeconomic volatility also plays crucial significant role in fiscal deficit volatility. This suggests that stability in politico-economic variables along with improvement in governance tends to reduce fiscal deficit volatility. Supervisor:- Dr. Ahsan-ul-Haq

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Keywords : Financial Market Volatility, Fiscal Deficit Volatility, Macroeconomic Volatility, Political Instability, Structural Equation Modeling
Supervisor: Ahsan ul Haq Satti

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