Impact of Fiscal Decentralization on Economic Growth: EmpiricalEvidence from Pakistan

Abstract

The current study investigated the impact of fiscal decartelization on economic growth of Pakistan while considering the fiscal decentralization measures i.e., Provincial Tax revenue, Provincial Local Revenues, Federal Transfers and Total Provincial Revenue. The current study followed quantitative and descriptive type of the research.The data for the independent variables (i.e., Provincial Tax revenue, Provincial Local Revenues, Federal Transfers and Total Provincial Revenue) and dependent variable (i.e., Real GDP) was collected from different sources such as Pakistan Economic Survey (various issues) and OECD, World Bank, World Development Indicators (WBWDI), State Bank of Pakistan (SBP) etc. The data will be collected for a period between 1980 and 2020. The values of regression coefficient for provincial local revenue(41.39114) at significance level of (p=0.0023 and t=2.547661) indicated that provincial local revenue contributes more to the economic growth. Similarly, the values of regression coefficients for provincial tax revenue, federal transfers, and total prosocial revenue were -18.61227, 47.37730 and 14.74753 and significant at (p=0.0031 and t=-2.229872), (p=0.0017 and t=3.837237) and (p=0.0044 and t=2.044444) respectively, indicating that provincial tax revenue, federal transfers, and total prosocial revenue are also having significant impact on economic growth. The study suggested that provincial and local levels governments should be given more autonomy and authority in fiscal matters.