Fiscal Dominance and the Inflation Dynamics in Pakistan
An Empirical Analysis
Bibliographic Data
| ID | 13083281 |
|---|---|
| Authors | Irem Batool (0000-0002-4533-2661, University of Management and Technology), Khurram Ejaz Chandia (0000-0003-2525-4923, COMSATS University Islamabad, corresponding author), Binesh Sarwar (0000-0002-5340-846X, COMSATS University Islamabad), Muhammad Badar Iqbal (COMSATS University Islamabad) |
| Year | 2022 |
| Volume | 15 |
| Issue | 1 |
| Pages | 51-71 |
| Publication date | 2022-06-26 |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Millennial Asia (JOURNAL) |
| Journal identifiers | ISSN: 2321-7081 • E-ISSN: 0976-3996 |
| Publisher | SAGE Publishing (PUBLISHER • US) |
| DOI | 10.1177/09763996221103003 |
| OpenAlex | W4283517140 |
| Language | EN |
| Citations received | 1 |
| References cited | 48 |
The presence of high inflation coupled with a persistent and ever-increasing fiscal deficit is the key problem being faced by the developing economies. The fiscal dominance hypothesis suggests that a developing economy is prone to high persistent inflation when government authorities run huge persistent budget deficits and get them financed through money creation. The primary objective of the current study is to test and examine the presence of the fiscal dominance situation over the period 1971–2020. The current study has modelled inflation as a fiscally driven monetary phenomenon by combining monetary and fiscal variables. The study has used the autoregressive distributed lag (ARDL) technique to analyse the long-run and short-run dynamics in a unified framework. The empirical results point to strong and statistically significant long-term relationships between budget deficits and money growth and between money creation and inflation. The study validates the presence of the fiscal dominance hypothesis in the case of a developing economy. The results imply that fiscal dominance handling through a realistic and continuous process of fiscal adjustments on the back of supported monetary policy is necessary for attaining and sustaining price stability in developing countries like Pakistan. In the context of public finance, a broad and wide-ranging tax reforms (increasing the tax base, designing an inflation-proof tax system, and improving tax administration and collection), rationalized government expenditures and privatization of loss-making state enterprises are crucial in establishing the trustworthy fiscal policy
Debt · Deficit spending · Dominance (genetics · Economics · Fiscal policy · Inflation (cosmology · Inflation tax · Macroeconomics · Monetary economics · Monetary policy · Public finance · Short run · Fiscal Policies and Political Economy · Fiscal Policy and Economic Growth · Monetary Policy and Economic Impact
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The saving and investment nexus for China
The role of macroeconomic factors in growth
Bounds testing approaches to the analysis of level relationships
The Relationship Between Inflation and the Budget Deficit in Turkey
Assessment of Public and External Debt Sustainability Using Debt Dynamics Equation Approach
An Analysis of Fiscal Policy in an Emerging Economy
On the Determination of the Public Debt
Fiscal Dominance and Money Growth in Italy
| Citations per year | 0.25 |
|---|---|
| Citation span | 2022 - 2022 (1) |
| Highly cited | No |