Decentralisation and Quality of Fiscal Management: Empirical Evidence from Pakistan

Asif Razzaq; Rabia Nazir; Sundus Shaheen

doi:10.59926/jodprp.vol06/02

Authors

Asif Razzaq School of Management & Economics, Dalian University of Technology, China
Rabia Nazir Department of Economics, Islamia University of Bahawalpur, Pakistan
Sundus Shaheen Department of Commerce, Islamia University of Bahawalpur, Pakistan

DOI:

https://doi.org/10.59926/jodprp.vol06/02

Keywords:

Fiscal Decentralisation, Public Deficit, Underground Economy, Cointegration

Abstract

Effective use of public resources is crucial for developing countries facing persistent deficits. Fiscal decentralisation is believed to enhance government efficiency over resource use. Therefore, the paper intends to examine the association between Pakistan’s Fiscal Decentralisation (FD) and Fiscal Management from 1988 to 2020. The authors develop a Composite Decentralisation Index (CDI) that captures the effect of both Expenditure Decentralisation (ED) and Revenue Decentralisation (RD) processes. After confirmation of stationarity through augmented Dickey-Fuller (ADF) and Philip-Peran (PP) unit roots tests, the study employs the Johansen cointegration method to draw longrun estimates. The study’s findings reveal that composite decentralisation reduces public deficit significantly - lower corruption, weaker underground economy, and smaller government size help reduce the fiscal deficit. The Error Correction Term (ECM) is also negative and significant at 1%, which confirms the speed of convergence towards longrun equilibrium in case of any shock or dis equilibrium in the short run. These study findings may help policymakers and legislatures draft effective long-term fiscal management policies.

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Author Biographies

Asif Razzaq, School of Management & Economics, Dalian University of Technology, China

Rabia Nazir, Department of Economics, Islamia University of Bahawalpur, Pakistan

Sundus Shaheen, Department of Commerce, Islamia University of Bahawalpur, Pakistan

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