Cointegration Analysis of Indirect Taxes and Fiscal Deficit in Pakistan

Irfan-Ullah and Farid Ullah Khan

Journal of Public Policy & Governance, 2014, vol. 1, issue 1, 1-6

Abstract: The paper is analyzing the existence of long run relationship between fiscal deficit and indirect taxes in Pakistan for period 1981 to 2010. We used unit root properties of variables followed by Johansen cointegartion and Granger casualty techniques for data estimation. The empirical findings show a possible long run relationship between indirect taxes and fiscal deficits. Indeed univariate causality from fiscal deficit towards indirect taxes also implies that fiscal deficit causes indirect taxes to increases. Both indirect taxes and fiscal deficit have severe implication for economic growth, investment, FDI and consumption decision, therefore government should adopt an optimal tax policy acceptable to both consumer and producer. Indeed, government should minimize the budget deficits or alternative switch towards income taxes and increase its share in total revenues.

Keywords: co-integration; fiscal deficits; indirect taxes; Pakistan (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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