Exploring the Drivers of Government Expenditure Patterns in Pakistan

Abstract

The study investigating the factors influencing government spending in Pakistan utilizes time-series data spanning from 1980 to 2019. The analysis modifies Wagner's law by incorporating political instability alongside variables such as GDP, debt, inflation, population, trade openness, oil price, and tax revenue. The long-term findings validate Wagner's law in both models, while the short-term results deviate from Wagner's law in Pakistan. This deviation suggests that industrialization progress has enabled the government to improve public expenditure by providing essential facilities. Additionally, the study reveals that the government's active role in national activities leads to an increase in its size. Inflation, population, oil price, real GDP, and political instability exhibit positive and significant connections with government expenditure in the long run for both models. Conversely, debt, nominal GDP, political instability, trade openness, and tax revenue demonstrate negative and significant connections with government expenditure in the long run for both models. However, the short-term results vary between the two models.