A juxtaposition of Tax Expenditures and Direct Expenditures: Case Study of Pakistan

Shagufta Shabbar, Qazi Masood Ahmed and Farooq Pasha

MPRA Paper from University Library of Munich, Germany

Abstract: One of the objectives of the government is to boost the level of investment in the economy. With limited fiscal space little attention is paid to the effective usage of tax expenditures. This paper evaluates government’s options of tax expenditures and direct expenditures to augment private investment in Pakistan. The data from the Manufacturing Sector of Pakistan for a period of 1972 to 2013 is used in a bounds testing approach of Autoregressive Distributed Lag model. The empirical evidence shows a strong role of direct expenditure in influencing both short-run and long-run behavior of investment in the economy. The results further demonstrate that under low inflation the tax expenditure policy is more important determinant of private investment, however, in high inflation periods, direct expenditure is found to be more potent.

Keywords: Investment; cost of capital; tax expenditure; ARDL; Pakistan. (search for similar items in EconPapers)
JEL-codes: H00 H1 H25 H26 H27 H3 H30 H5 (search for similar items in EconPapers)
Date: 2018, Revised 2018
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Published in Proceedings of Economics and Finance Conferences 7108450.1(2018): pp. 20-37

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:117419

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