Decision between Public Investment and Public Consumption: A Policy Analysis

Muhammad Raashid, Abdul Saboor and Aneela Afzal
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Muhammad Raashid: PhD Scholar, Pir Mehr Ali Shah Arid Agriculture University Rawalpindi, Punjab, Pakistan.
Abdul Saboor: Dean, Faculty of Social Sciences, Pir Mehr Ali Shah Arid Agriculture University Rawalpindi, Punjab, Pakistan
Aneela Afzal: Assistant Professor, Department of Sociology, Pir Mehr Ali Shah, Arid Agriculture University, Rawalpindi, Punjab, Pakistan.

Global Economics Review, 2020, vol. 5, issue 1, 131-152

Abstract: This study aims to draw a policy decision between public investment and public consumption by designing a Dynamic Stochastic General Equilibrium (DSGE) model for the economy of Pakistan which is experiencing persistent shocks that have stressed the growth pattern. The DSGE model has a microeconomic foundation and justifies locus critics by envisioning an artificial economy. The model is evaluated and set to best fit for data through an exercise of moment matching. Government consumption shocks and Government Investment shocks are used to trace out the behaviour of the economy. The analysis confirms that Pakistan economy could go for capital formation through public investment but it results in compromised public consumption and structural unemployment. It is further concluded that the export base and long-run public investment programs are needed to achieve sustainable development in the economy.

Keywords: Fiscal Policy; Analysis; Public Investment; Consumption; DSGE model. (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:aaw:journl:v:5:y:2020:i:1:p:131-152

DOI: 10.31703/ger.2020(V-I).11

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