Fiscal Decentralization and Macroeconomic Stability: Theory and Evidence from Pakistan

Nasir Iqbal () and Saima Nawaz

MPRA Paper from University Library of Munich, Germany

Abstract: The research on the relationship between macroeconomic stability and fiscal decentralization has been rather inconclusive about the benefits of fiscal decentralization. The current paper is the first to investigate the effect of fiscal decentralization on macroeconomic stability by using Misery Index at country level especially for Pakistan. The evidence that has been presented reveals a significant positive impact of fiscal decentralization on macroeconomic stability of Pakistan, although the results are much weaker for expenditure decentralization. Effectiveness of expenditure decentralization in curtailing macroeconomic instability is depending upon the level of revenue decentralization. The current study clearly indicates that process of fiscal decentralization is beneficial for the economy of Pakistan. The present developments under taken by the government of Pakistan in term of 7th NFC award and 18th Constitutional Amendment will have clear implications for the Pakistan’s long term economic prosperity and macroeconomic stability. However, outcome of these reforms crucially depends upon the will of the political government.

Keywords: Fiscal Decentralization; Macroeconomic Stability; Pakistan (search for similar items in EconPapers)
JEL-codes: E24 E31 E62 H77 O11 (search for similar items in EconPapers)
Date: 2010-12-02
New Economics Papers: this item is included in nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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