Analyzing the Correlates of Fiscal Deficit in Pakistan

Abstract

The study delineates the fiscal dimensions of Pakistan’s economy to find fundamental correlates of fiscal deficit (FD). The empirical analysis was performed by the Auto-Regressive Distributed Lag (ARDL) regression technique. The results confirm that interest payments, savings-investment gap, and foreign exchange gap (FEG) are fundamental factors which cause to increase the FD while output causes to mitigate the FD. The study suggests that deficit reduction may be carried out through a reduction in the savings-investment gap, FEG, interest payments, and an increase in output by domestic resource mobilization.