Government revenue and economic growth of Pakistan (1979 – 2017)

Abstract

The study is conducted to identify the relationship between economic growth of Pakistan and government revenue sources – i.e. Tax Revenue, Non-tax Revenue and Additional Receipts, while measuring the change in economic development occurs due to change in government revenue sources in short-run as well as in long-run. Autoregressive Distributed Lag (ARDL) is performed on time series secondary data for the period from 1979 to 2017 and a forecasting model is developed to anticipate change in economic growth due to change in government revenue sources. Results concluded that Tax Revenue has positive significant relationship and Additional Receipts have negative significant relationship, however, Non-tax Revenue has positive insignificant relationship with economic growth of Pakistan in long-run, whereas no short-run relationship is identified among dependent and independent variables. The analysis indicated that 1% change in Tax Revenue results in 1.24% change in economic growth in the same direction, whereas 1% change in Additional Receipts results in 0.18% change in opposite direction in economic growth of Pakistan in long-run. However, evidences showed that in recent years, government has increased its dependency on the Additional Receipts as compared to Tax Revenue and Non-tax Revenue. For prosper and accelerated economic growth, it is suggested that policy makers should focus on increasing the revenue collection from Tax Revenue sources since economic growth of Pakistan is positively influenced by Tax Revenue and minimize dependency on the Additional Receipts as it hinders the economic growth. Proposed forecasting model provides promising results and projected the gross domestic product (GDP) for year 2018 with mare 0.32% and 4.44% deviation in logarithm value and rupee values, respectively.