ASSIGNMENT

ON
FI
SCALPOLICY:
DETERMI
NANTSAND
IMPLICATI
ONS

SUBMI
TTEDTO:
DR.
ASLAM

SUBMI
TTED BY
MP-04AYESHAI
KRAM
MP-
07HAFSASHAFI
QUE
M.
PHI
LECONOMI
CS(
MORNI
NG)
SEMESTERI
I

DEPARTMENTOFECONOMI
CS
UNI
VERSI
TYOFTHEPUNJAB,
LAHORE
Gov
ernmentandCent
ralBankut
il
izef
inanci
alandmoneyr
elat
edar
rangementsoast
o
achi
eveanat
ion'
smonet
arygoal
.Monet
aryar
rangementassumesani
mper
ati
vej
obi
n
t
hri
vi
ng t
he economy
.The f
undament
alcapaci
ty oft
he f
inanci
alst
rat
egy i
sthe
assi
gnmentanddi
sper
sionofasset
s,bal
anceoutt
heeconomyandi
ncr
ementt
he
monet
arydev
elopment
.A l
arge por
ti
on oft
he mar
ketanal
yst
s acknowl
edge t
hat
dev
icesoff
inanci
alar
rangementl
i
ke"
taxassessment
,openspecul
ati
on"canqui
cken
t
he monet
arydev
elopmentoft
he nat
ion.Fi
nanci
alst
rat
egymanagesgov
ernment
i
ncomeaccumul
ati
onanduset
oscr
eenandi
mpactcount
ry'
seconomy
.Changesi
nthe
di
mensi
onand ar
rangementoft
axassessmentand gov
ernmentconsumpt
ioncan
i
mpactt
heaccompany
ingmacr
oeconomi
cfact
ors,
alongsi
deot
her
s:
 Aggr
egat
edemandandt
hel
evel
ofeconomi
cact
ivi
ty
 I
nvest
mentandSav
ing
 Di
vi
sionofi
ncome
 Di
str
ibut
ionofr
esour
ces

DETERMI
NANTS OUTCOMES
AS
Out
put
I
nter nal
Mar ket
Forces
Employment
opport
uni
ti
es
Ext
ernal
Shocks Pr
ices

Gr
owt
h
Poli
cy AD
l
evers
fi
scal I
nter
nati
onal
poli
cy bal
ances
Haf
saShaf
ique
MP-
07
Di
piet
ro(
2011)
,inv
est
igat
edt
hecr
osscount
ryr
egr
essi
onanal
ysesoft
he“
debtand
ot
herdet
ermi
nant
sfi
scalpol
i
cy”dur
ingt
heper
iodof(
1998-
2008)
.Themai
nobj
ect
ive
oft
hispaperi
stoanal
yzet
hatwhat
everpol
i
tical
l
yandf
inanci
all
yuseoff
iscalpol
i
cyi
s
muchmor
edi
ff
icul
twhent
hegov
ernmentt
akehi
ghl
evelofdebtornot
.Theusageof
f
iscal
pol
i
cyi
sinf
luencedt
heeconomybyt
woway
smor
eef
fect
ivel
y.Fi
rst
,the“
abi
l
ityt
o
uset
hef
iscal
pol
i
cy”Second,
“theneedoff
iscal
pol
i
cyi
nor
dert
ost
abi
l
izet
heeconomy
”
Thi
sst
udyt
ookt
hesev
ari
abl
esofdi
ff
erentcount
ri
esgov
ernmentexpendi
tur
e,r
eal
GDP,
publ
i
cdebtf
rom WDI
.Hi
ghl
eveloft
hepubl
i
cdebtweakt
heuseoff
iscalpol
i
cymost
ly
i
ntol
essorunder
-dev
elopedcount
ri
es.Ther
eisanegat
iver
elat
ionshi
pbet
weenhi
gh
publ
i
cdebtandt
heeconomi
cdev
elopment
.
Cr
it
ique:Thi
spaperconcl
udedt
hathi
ghpubl
i
cdebtnegat
ivel
yaf
fectt
heeconomi
c
dev
elopmentandt
heuseoft
hef
iscalpol
i
cy.But
,debtcani
ncr
easet
hedev
elopmentof
t
hecount
ry,i
fwecanusei
tinanef
fect
iveway
.Weshoul
dtr
ytomaket
hisamountof
t
hepr
ogr
essi
veexpendi
tur
eoft
hegov
ernment
.Thi
sst
udydescr
ibedt
her
elat
ionshi
p
bet
weent
hesev
ari
abl
es,butcan’
tdescr
ibet
heuseofdebt
.Thi
sst
udyal
sodi
dnot
expl
aint
hedoner
’sobj
ect
ivet
ogi
vedebtt
oanycount
ry.Most
lyI
MF,andWTO and
ot
hersour
cesgi
vedebtundersuchasev
eret
ermsandcondi
ti
ont
hatgov
ernment
cannotusei
taccor
dingt
oit
swi
l
l.Gov
ernmental
sot
ryt
obenef
itt
hemsel
vesf
rom t
his
amountr
athert
hant
heeconomy
.

Vl
adi
mir
ovandNey
chev
a exami
nedt
henon-l
i
nearef
fect
soff
iscalpol
i
cyi
nthe
Bul
gar
ianeconomyundera“
Cur
rencyBoar
dAr
rangement
”(1998-
2004)ont
heshor
trun.
Thest
udyt
ookv
ari
abl
edi
scr
eti
onar
yexpendi
tur
e,di
scr
eti
onar
ytax,r
ealGDPgr
owt
h
f
rom Mi
nist
ryofFi
nanceandNat
ionalSt
ati
sti
calI
nst
it
ute.Thest
udyusedt
heGr
anger
t
estt
o check t
he causal
i
ty bet
ween t
he r
ealgdp gr
owt
h and t
he di
scr
eti
onar
y
expendi
tur
eandt
axchanges.Ther
esul
tsdepi
cit
sthatt
her
eisanegat
iver
elat
ionshi
p
bet
ween r
ealGDP gr
owt
h(Key
nesi
an manner
)and di
scr
eti
onar
yexpendi
tur
e and
posi
ti
ver
elat
ionshi
pbet
weendi
scr
eti
onar
ytaxandr
ealGDP gr
owt
h(non-
key
nesi
an
manner
)int
he Bul
gar
ian economy
.The r
esul
ts suggest
ed t
hatbal
anced budget
i
mpr
oves.
publ
i
cfi
nance.
Cr
it
ique:Thi
spaperi
nvest
igat
edt
heshor
truni
mpactoft
hemaj
ort
ool
soff
iscalpol
i
cy
l
i
ket
axat
ionandgov
ernmentspendi
ngont
hegr
owt
hoft
heBul
gar
ianeconomy
.But
,to
anal
yzet
hei
mpactofanyv
ari
abl
eef
fect
ivenessweshoul
dst
udyofl
ongt
imeper
iod.I
n
mostoft
hecount
ri
est
het
axat
ionposi
ti
vel
yimpactoft
hei
rcount
ri
es.

Fur
cer
iandJal
l
es(
2015)anal
yzedt
he”t
imev
ary
ingmeasur
esoff
iscalst
abi
l
izat
ionf
or
anunbal
ancedpanel
”of61dev
elopedandunder
dev
elopedcount
ri
es(
1980-
2014)
.The
st
udyused RealGDP percapi
ta,f
inanci
aldev
elopment
,Tr
ade openness,Capi
tal
accountopenness t
otestt
he f
iscalst
abi
l
izat
ion.The r
esul
ts show t
hatf
iscal
st
abi
l
izat
ionhasi
ncr
easedi
nmanydev
elopedandemer
gingcount
ri
esi
nther
ecent
y
ear
s.Fi
scalst
abi
l
izat
ionmi
nimi
zest
hev
olat
il
it
yinout
putandsi
gni
fi
cant
lyposi
ti
vel
y
l
i
nkedwi
thabov
evar
iabl
es.
Cr
it
ique:
Thi
spaperanal
yzedt
hei
mpactoff
iscalst
abi
l
izat
ionofdi
ff
erentcount
ri
es.
Thi
shel
pedt
oreducet
heout
putv
olat
il
it
y.But
,thi
sst
udycan’
texpl
aint
hathowcanl
ess
-
dev
elopedcount
ri
esuset
hef
iscalst
abi
l
izat
ioni
nmor
eef
fect
iveway
.Because,
ther
eis
agr
eatneedoft
his.

Mui
nel
oandRoca-
Sagal
esi
nvest
igat
edt
hei
mpactoff
iscalpol
i
cyoneconomi
cgr
owt
h
andi
ncomei
nequal
i
tyof43uppermi
ddl
eandhi
ghi
ncomedur
ingt
heper
iodof(
1972-
2006)
.Thest
udyt
ookdat
aofeconomi
cgr
owt
h,i
ncomei
nequal
i
tycont
rolv
ari
abl
es
“
dir
ectt
ax,i
ndi
rectt
axpr
ivat
einv
est
ment
,popul
ati
ongr
owt
h”f
rom WDI
.Thest
udy
est
imat
eequat
ions(or
thogonal
,st
ruct
ural
)tof
indt
hei
mpactoff
iscalpol
i
cyon
economi
cgr
owt
handi
nequal
i
ty.Thest
udyusedOLS,GLSHausmant
est
.Ther
esul
ts
showed t
hati
ncr
easi
ng t
he t
axes t
oincr
ease t
he publ
i
cinv
est
menti
ncr
ease t
he
economi
cgr
owt
h.
Cr
it
ique:Thi
spaperanal
yzedt
hei
mpactofuppermi
ddl
eandhi
ghi
ncomecount
ri
esbut
noti
ncl
udedt
hel
owi
ncomecount
ri
es.Thi
sst
udy

East
erl
yandRabel
o(1993)expl
oredt
hei
nst
rument
sofmonet
aryappr
oachont
he
f
inanci
aldev
elopment and adv
ancement on t
he cr
oss segment and r
ecor
ded
i
nfor
mat
ion ofv
ari
ous nat
ions (
1970-
1988)
.Theyi
nvest
igat
ed t
hatadmi
nist
rat
ion
specul
ati
on on t
he cor
respondence and t
ranspor
tat
ion exceedi
ngl
y deci
dedl
y
f
undament
all
yswayon t
he monet
arydev
elopmenty
etopen v
ent
ure and t
he agr
i
specul
ati
onadv
ersel
yswayont
hedev
elopment
.Char
gesessent
ial
l
yswayt
hemonet
ary
dev
elopmenthowev
ert
hei
rci
rcul
ati
onar
rangementofexpensesi
sn'
tpr
ofi
cient
.
Cr
it
ique:Thi
sinv
est
igat
ionpr
inci
plecent
ert
heef
fectofi
nst
rument
soft
hef
inanci
al
appr
oachcor
respondenceandt
ranspor
tat
ion.I
nanycase,
thi
sinv
est
igat
iondi
sregar
ds
t
o di
scov
ert
heef
fectofi
nst
rument
soff
inanci
alappr
oachont
her
ealar
easl
i
ke
exchange,
simi
l
arl
ydi
ssemi
nat
ionofasset
sandswel
l
ingandsof
ort
h.Andf
urt
her
mor
e
can'
tcl
ari
fyt
hosemeasur
est
hatnat
ionsoughtt
orecei
vet
obui
l
dthedev
elopmentof
agr
ibusi
nessandv
ent
urespecul
ati
on.Thi
sst
udyt
ookt
ranspor
tat
ion,
andagr
isect
ort
o
anal
yzet
heef
fect
soft
hepol
i
cy,
butot
hermaj
orsect
orsnoti
ncl
udedi
nthi
sst
udy
.

Ay
eshaI
kram
MP-
04

Subhaniand Al
i(2012)anal
yzed t
her
elat
ionshi
p bet
weent
axr
ates,i
nfl
ati
onr
ate,
bal
anceoft
radeandf
iscaldef
ici
tov
ert
heper
iodof1979t
o2009.Thest
udyt
ookdat
a
f
rom St
ateBankofPaki
stanandEconomi
cSur
veyofPaki
stan.Bal
anceoft
radeand
i
nfl
ati
onr
ateasdependentv
ari
abl
e.Andt
hisst
udyt
ookt
axr
ates,f
iscaldef
ici
tsas
i
ndependentv
ari
abl
es.Usi
ng(
2Sl
S)t
echni
que,
int
hisst
udy
,resul
tsshowt
hatt
her
ewas
no si
gni
fi
cant
lyi
mpactt
axr
ateoni
nfl
ati
onbuthasi
mpactbet
weent
axr
ateand
bal
anceoft
radei
nPaki
stan.
Cr
it
ique:Thi
s paper anal
yzed t
he i
mpact of t
axat
ion t
o cont
roli
nfl
ati
on and
i
mpr
ovementofbal
ance oft
rade butot
heri
mpor
tantt
ool
s(publ
i
c expendi
tur
es,
subsi
dies,
transf
erpay
ment
s)off
iscal
pol
i
cywer
enotdi
scussed.
Ant
oni
oFat
asandI
li
anMi
hov
,int
hisar
ti
clet
her
eist
hest
udyoft
hei
mpact
soff
iscal
pol
i
cyoneconomi
cact
ivi
ty.I
nthi
spapert
her
eist
hesel
ect
ionofsampl
eof20OECD
economi
esandusedat
afr
om US,appl
yVARmodelandsel
ect4l
agsbasedonAI
C.
Thi
sar
ti
clebasi
cal
l
yfocusesont
woi
ssues:1)Fi
scalpol
i
cyhel
pst
ost
abi
l
izet
he
busi
nesscy
clef
luct
uat
ionsandt
heyexami
nedt
hatsi
zeoft
hegov
ernmentst
abi
l
ize
out
put f
luct
uat
ions.2) The dy
nami
cimpact
s of opt
ionalchanges i
nfi
nanci
al
ar
rangement
.Int
his paper cr
eat
or t
ri
ed t
he ef
fectof segment
s of monet
ary
ar
rangementon dev
elopmentr
ate ofGDP.They demonst
rat
ed t
hatconductof
assessment
s and mov
es ov
ert
he busi
ness cy
cle hel
p smoot
hing di
scr
eti
onar
y
cashf
low.Theysaw t
he connect
ion bet
ween'
sthe si
ze oft
he admi
nist
rat
ion and
r
esponsi
venessofmonet
aryst
rat
egyi
scer
tai
nhowev
eratmoder
atei
nsi
zeandf
ound
t
hathugegov
ernment
sar
econt
rar
il
yrel
atedwi
tht
hei
nst
abi
l
ityofPr
ivat
eGDP.They
anal
yzedandi
nfert
hatchangesi
nassessment
s,mov
esandgov
ernmentspendi
ngar
e
t
hemostef
fect
ivei
nst
rument
sofmonet
aryappr
oach.

Cr
it
ique:I
nthi
s ar
ti
clet
her
eis di
scour
se aboutchar
ges,mov
es and gov
ernment
spendi
nghowev
ert
hisar
ti
cledoesnotconsi
dert
hev
ari
ouspar
tsofgov
ernmentuses
anddut
ies.
Thi
sar
ti
cleshowt
hatl
argegov
ernment
sar
einv
ersel
ycor
rel
atewi
thpr
ivat
e
GDPRecentdat
aonpubl
i
cspendi
ngshowst
hatgov
ernment
sar
oundt
hewor
ldof
ten
r
elyont
hepr
ivat
esect
ort
opr
oduce,
managegoodsandser
vices.I
nthi
sar
ti
cler
esul
ts
showt
hatt
axesandt
ransf
ersov
ert
hebusi
nesscy
clehel
pinsmoot
hingt
heeconomy
buti
nreal
i
tyespeci
all
yint
hecaseofdev
elopi
ngcount
ri
est
her
ear
eal
socombi
nat
ion
ofi
nter
nal
andext
ernal
pol
i
ciesar
erequi
redt
ost
abi
l
izet
heeconomi
cfl
uct
uat
ions.

R.
Lane(
2002)
,inhi
spapert
her
eist
hedi
alogaboutcy
cli
cal
i
tyoff
inanci
alappr
oachi
n
an exampl
e ofOECD nat
ions.Thi
s paperhas t
wo pr
inci
ple commi
tment
s:1)i
t
comput
est
her
elapsebasedcy
cli
cal
i
typoi
nter
sfordi
saggr
egat
edpar
tsofmonet
ary
appr
oachonanat
ionbynat
ionr
easonf
oral
otofOECDnat
ions.Thi
sinv
est
igat
ion
cent
ersar
oundt
hecy
cli
cal
i
tyofgov
ernmentspendi
ngr
atheroni
tsspendi
ng.I
nthi
s
ar
ti
cle,Dat
acompr
iseont
heexampl
eoft
he22cust
omar
yindi
vi
dual
sfr
om OECDand
y
ear
lyi
nfor
mat
ioni
sgat
her
edf
rom OECD f
inanci
alst
andpoi
ntDat
abasef
rom 1960-
1998.Thi
s exami
nat
ion l
ooks att
he essent
ialsur
plus as a pr
opor
ti
on t
o GDP.
Consequences oft
his exami
nat
ion demonst
rat
ethatt
he admi
nist
rat
ion ut
il
izat
ion
segmentofcur
rentspendi
ng i
sreal
l
ypr
ocy
cli
caland compr
ehensi
vel
ybol
stert
he
cont
ent
iont
hatpol
i
ticaleconomycomponent
sassumeasi
gni
fi
cantj
obi
ndeci
dingt
he
l
evel
ofcy
cli
cal
i
tyi
ngov
ernmentspendi
ngcr
osswi
seov
erOECDnat
ions.
Cr
it
ique:Thi
sst
udycanbest
ret
chedouti
nvar
iousway
s.Thi
spaperconsi
der
edj
ust
OECD nat
ionsi
tisal
l
uri
ngt
oampl
i
fyt
heexampl
eest
imat
ebyi
ncl
udi
ngnon-
OECD
nat
ions.Thi
sar
ti
cl
edi
scussedaboutgov
ernmentspendi
ngbutnotment
ionedspeci
fi
c
sect
or(
Heal
th,educat
ion et
c.)i
n whi
ch t
o dev
elop t
hese expendi
tur
es woul
d be
benef
ici
al.

LeonelMui
nel
o-Gal
l
o,Or
iolRoca-
Sagal
es(
2013)
,int
hisst
udyt
her
eist
heanal
ysi
soft
he
i
mpor
tanceofgr
ossi
ncomei
nequal
i
ty,
otheri
nst
it
uti
onal
,economi
cexpl
anat
oryf
act
ors
ont
hechoi
ceofdi
ff
erentpol
i
cyout
comesandal
soest
imat
est
heef
fect
ivenessof
t
hesepol
i
ciesi
nor
dert
odecr
easeneti
ncomei
nequal
i
tiesandal
sot
hei
rimpact
sin
t
ermsofmacr
oeconomi
cpr
ofi
ciency
.Int
hisst
udyt
heempi
ri
calanal
ysi
susedt
he
dat
asetof21OECDcount
ri
escat
egor
izedashi
ghi
ncomef
ort
heper
iod(
1972-
2006)by
Wor
ldBank.I
nthi
sar
ti
clet
her
ear
ethr
eeequat
ionsr
elat
ingt
hreeendogenousv
ari
abl
es:
economi
cgr
owt
h,i
ncomei
nequal
i
tyandf
iscal
pol
i
cyout
comes.I
nor
dert
oest
imat
ethe
i
nter
dependencebet
weent
heseendogenousv
ari
abl
est
heyusedt
wot
ypesofequat
ion
sy
stem:1)Seemi
ngl
yunr
elat
edequat
ion(
SUR)
,2)Si
mul
taneousequat
ionmodel(
SEM)
.
I
nthi
sst
udy
,resul
tsshow t
hatr
ichereconomi
esi
nthesampl
eusemor
eint
ensi
vel
y
di
str
ibut
iveexpensesandi
ndi
rectt
axes.Accor
dingt
other
esul
tpr
esent
edi
nthi
sar
ti
cle,
i
mpor
tanceofi
ntegr
ategr
ossi
ncomei
nequal
i
tyast
henot
ewor
thyel
ementoff
iscal
pol
i
cyandal
sot
hechoi
ceoff
iscalpol
i
cyst
rat
egyhasgr
eatsi
gni
fi
cancef
orpr
omot
ing
bal
ancedeconomi
cdev
elopment
.
Cr
it
ique:I
nthi
sst
udyt
her
eisdi
scussi
onaboutr
ichereconomi
es,mi
ddl
eandl
ow
economi
esar
eignor
ed.Thi
sar
ti
cle,j
ustconsi
der
ed i
ncome i
nequal
i
tyasnot
abl
e
el
ementoff
iscalpol
i
cywhi
chi
snotsat
isf
act
ory
,Ther
ear
eal
somanyot
herr
emar
kabl
e
el
ement
soff
iscal
pol
i
cywhi
char
eignor
ed.
Fi
scal
pol
i
cy:
det
ermi
nant
sandI
mpl
i
cat
ions:
Somemaj
orf
indi
ngsoft
hisl
i
ter
atur
erev
iewar
e:
 Changesi
ntaxes,t
ransf
ersandgov
ernmentspendi
ngar
ethemostef
fi
cient
t
ool
soff
iscal
pol
i
cy.
 I
mpor
tanceofi
ntegr
ategr
ossi
ncomei
nequal
i
tyast
henot
ewor
thyel
ementof
f
iscal
pol
i
cy
 The choi
ce off
iscalpol
i
cy st
rat
egy has gr
eatsi
gni
fi
cance f
orpr
omot
ing
bal
ancedeconomi
cdev
elopment
.
 Bal
ancedbudgeti
mpr
ovespubl
i
cfi
nance
 I
ncr
easi
ngt
het
axest
oincr
easet
hepubl
i
cinv
est
menti
ncr
easet
heeconomi
c
gr
owt
h.

Haf
saShaf
ique
MP-
07
Ay
eshaI
kram
MP-
04
Cr
it
ical
Rev
iew
 Gov
ernmentuset
hef
iscalpol
i
cy,i
nor
dert
omai
ntai
nthet
heeconomyofany
count
ry.Themaj
ordet
ermi
nant
soff
iscalpol
i
cyar
etaxat
ion,publ
i
cinv
est
ment
et
c.Thesi
gni
fi
cantuseoft
hesei
nst
rument
scanaccel
erat
etheeconomy
.But
,if
t
hegov
ernmentcan’
tabl
etousei
tinef
fect
ivewayt
hant
hesei
nst
rument
s
mul
ti
plet
imes adv
ersel
yimpactt
he economy
.Khal
i
lAhmad and Saj
i
da
Waj
i
d(2008)anal
yzed t
hatnon-
product
ive expendi
tur
e and non-
dist
ort
ionar
y
t
axesneut
ral
impacti
ntheeconomyofPaki
stan.
 Wi
l
li
am Di
piet
ro(
2011)anal
yzedt
hathi
ghpubl
i
cdebtmi
nimi
zet
hei
mpactoft
he
f
iscalpol
i
cy.Hei
nvest
igat
edt
hatpol
i
tici
ansmani
pul
atet
hef
iscalpol
i
cyf
ort
hei
r
per
sonal
use,
andpl
ayt
hei
rmaj
orr
olei
nhar
mingt
heeconomy
.
 ThomasPepi
nsky
(2007)Aut
hor
it
ari
anr
egi
messpeci
fi
cal
l
yusef
iscalpol
i
cyt
o
har
mthei
ropponent
s.Most
lygov
ernmentusef
iscal
pol
i
cyt
obenef
itt
hemsel
ves.
Theygi
vemor
eimpor
tancei
ntot
hei
rper
sonalgai
nsr
athert
hant
hegai
nsoft
he
whol
eeconomy
.
 Fi
scalpol
i
cycan’
twor
kift
hegov
ernmenthasnotpr
operi
nfor
mat
ionaboutt
he
economy
,suchasi
fgov
ernmentant
ici
pat
est
hatt
her
eisgoi
ngt
obeaboom i
n
t
heeconomy
,andgov
ernmentt
ooksuchst
epst
hatdecr
easet
heAD,buti
fthi
s
boom wi
l
lnothappent
hanbyt
hesest
epsoft
hegov
ernmentcausedef
lat
ion.
 Ti
mel
agspl
ayamaj
orr
olei
nthei
nef
fect
ivenessoft
hef
iscalpol
i
cy.Ther
ear
e
maj
ort
hreet
ypesofl
ags“
admi
nist
rat
ivel
ag,
Recogni
ti
onl
ag,
Oper
ati
onal
lag”
 Oneoft
heexampl
esi
sthat
,ifgov
ernmentwant
stodecr
easeAD,
butt
hismost
ly
r
equi
resenought
imet
oimpl
ementsot
heef
fect
ivenessl
eveloff
iscalpol
i
cy
decr
eases.
 Expansi
onar
yfi
scalpol
i
cymaycause“
crowdi
ngout
”.Gov
t.i
nspendi
ngmoneyi
s
di
sor
gani
zedt
hanpr
ivat
esect
orsf
ort
hatr
easont
her
emayt
het
urndowni
n
economi
cwel
far
eoccur
.
 Realbusi
ness cy
cle cr
it
ique on t
he f
iscalpol
i
cy i
sthatal
loft
he maj
or
f
luct
uat
ionsar
ebecauseoft
hesuppl
ysi
de.So,byusi
ngt
hedemand-
sidepol
i
cy
cannotbeef
fect
ive,t
hismayonl
ycausei
nfl
ati
onar
ygapsandcannotaf
fectr
eal
v
ari
abl
es“
unempl
oymentandout
put
”.
 Someoft
her
easonswhyf
iscalpol
i
cyi
snotasmuchv
aluabl
easpr
efer
redar
e:
i
ncor
rectst
ati
sti
cs,
timel
ag,
scar
cit
yofr
esour
ces,
etc.
 Cr
it
ici
sm ofMonet
ari
st:Theybel
i
evet
hatl
ongr
unaggr
egat
esuppl
ycur
vei
s
i
nel
ast
ic,
sobyi
ncr
easi
ngordecr
easi
ngi
ntheAD,
wil
lnotbr
ingef
fectonout
put
.
So,
incr
easei
ntheADonl
yincr
easet
hei
nfl
ati
onoft
heeconomy
.
 Ref
erences

 Wi
l
li
am Di
pet
ro,Debtandot
herdet
ermi
nant
soff
iscalpol
i
cyJour
nelofAppl
i
ed
Fi
nanceandBanki
ng,
vol
.1no.
3,(
2011)
 Dav
ideFur
cer
iandJoaoTov
arJal
l
es(
2015)
,Det
ermi
nant
sandEf
fect
sofFi
scal
St
abi
l
izat
ion:
NewEv
idencef
rom Ti
me-
Var
yingEst
imat
es
 M.
I.
SubhaniandJawadAl
i
(2010)
,ImpactofFi
scalPol
i
cyont
heEconomyof
Paki
stan:
Sout
hAsi
anJour
nel
ofManagementSci
encesVol
.4,
No.
1,pp14-
22
 Vl
adi
mirVl
adi
mir
ovandMar
iaNey
chev
a,Det
ermi
nant
sofNon-
LinearEf
fect
sof
Fi
scal
Pol
i
cyonOut
put
:TheCaseofBul
gar
ia
 Lonel
Muni
elandOr
iolRoca-
Sagal
es(
2011)
,Economi
cGr
owt
handI
nequal
i
ty:The
Rol
eofFi
scal
Pol
i
cy
 Wi
l
li
am East
erl
yandSer
gioRebel
o(1993)Fi
scalPol
i
cyAndEconomi
cGr
owt
h:An
Empi
ri
cal
Inv
est
igat
ionWor
kingPaperNo.4499
 M.
I.
SubhaniandJawadAl
i
(2010)
,Impactoff
iscalpol
i
cyont
heeconomyof
Paki
stan,
Sout
hAsi
anJour
nal
sofmanagementSci
ences,
Vol
4,No.
1,pp14-
22.
 Ant
oni
oFat
asandI
li
anMi
hov
,Fi
scalpol
i
cyandBusi
nessCy
cles:Anempi
ri
cal
i
nvest
igat
ion.
 Mui
nel
o-Gal
l
o,RocaSagal
es(
2013)
,joi
ntdet
ermi
nant
soff
iscalpol
i
cy,i
ncome
i
nequal
i
tyandeconomi
cgr
owt
h,Economi
cmodel
i
ng30(
2013)
,814-
824.
 Khal
i
lAhmadandSaj
i
daWaj
i
d(2013)
,Whatmat
ter
sforeconomi
cgr
owt
hin
Paki
stan:
Fiscal
pol
i
cyori
tscomposi
ti
ons
 Dav
idLower
y(1985)
,TheKey
nesi
anandPol
i
ticaldet
ermi
nant
sofunbal
anced
budget
.Amer
icanJour
nal
ofPol
i
tical
Sci
ence.