Tax Decentralization and Economic Growth of Pakistan: The Role of Political Institutions

Authors

  • Muhammad Shahid Assistant Professor, Department of Economics, Govt. Islamia Graduate College Civil Lines Lahore, Pakistan Author
  • Khalil Ahmad Assistant Professor, Department of Economics, Govt. Islamia Graduate College Civil Lines Lahore, Pakistan Author
  • Muhammad Mudassar Naushahi Ph.D Scholar, School of Business and Economics, University of Management and Technology. Lahore, Pakistan Author
  • Muhammad Amir Inayat Ph.D Scholar, School of Accountancy and Finance University of Lahore, Pakistan, Author

DOI:

https://doi.org/10.61506/01.00195

Keywords:

Tax decentralization, political freedom, economic growth, co-integration

Abstract

Fiscal decentralization is one of the major policy variables to attain economic efficiency. The present study empirical examines the impact of tax decentralization on the economic growth of Pakistan through different institutional arrangements. Further, this study also investigates the complementarity (efficiency) or substitution (inefficiency) phenomena of tax decentralization and political institutions. Time series data is employed from 1972-2020 with relevant methods such as Kwiatkowski-Phillips-Schmidt-Shin (KPSS) and Ng-Perron unit root tests are used and Autoregressive Distributed Lag Approach (ARDL) is also used for co-integration. The results suggest that tax decentralization is growth promoting while political institutions have negative impact on economic growth. Provincial governments can produce better results while transferring responsibility of collecting tax from federal to provincial level. Further, this study also investigates the complementarity (efficiency) or substitution (inefficiency) phenomena of tax decentralization and political institutions.  Results show that tax decentralization and political institutions are substitute in case of Pakistan. For policy, the government has taken initiatives to provide more autonomy towards provinces with more resource allocation finally to get long run economic growth.  

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Published

2024-03-27

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How to Cite

Shahid, M. ., Ahmad, K. ., Naushahi, M. M. ., & Inayat, M. A. . (2024). Tax Decentralization and Economic Growth of Pakistan: The Role of Political Institutions. Bulletin of Business and Economics (BBE), 13(1). https://doi.org/10.61506/01.00195

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