Effects of Domestic Shocks to Fiscal Variables in Pakistan

Abstract

This study investigated the economic and local economic repercussions of the domestic shocks on the fiscal variables in Pakistan. The data was extracted from DOTS (Direction of Trade Statistics) and IFS (International Finance Statistics). A Vector Error Correction Model with foreign variables (VECMX^*) was applied for analysis. The findings of this study demonstrate that foreign GDP (Y^*_t-1) has a favorable long-term impact on domestic output in the domestic model (Y). The annual positive impact of foreign output on domestic output is 16.76%. The Domestic Total Public Revenue (TR_t-1) and Foreign Total Public Revenue (TR^*_t-1) values showed a 1.84% and 1.12% positive connection with domestic output, respectively. The study will help policy makers to develop effective fiscal policy on the basis of the findings of the study.