Fiscal Deficit and Private Sector Activities in Pakistan

Ashfaque H. Khan and Zafar Iqbal ()
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Ashfaque H. Khan: Pakistan Institute of Development Economics (PIDE) Quaid-i-Azam University Campus, Postal: P.O. Box. 1091, Islamabad, 44000, Pakistan ,, http://www.pide.org.pk/
Zafar Iqbal: Department of Management Sciences, National University of Computer and Emerging Sciences, Lahore Campus Block-B, Postal: Faisal Town - Lahore, Pakistan,, http://www.nu.edu.pk/

Economia Internazionale / International Economics, 1991, vol. 44, issue 2-3, 182-190

Abstract: The macroeconomic effects of fiscal deficit have been examined in the light of three theories.viz: conventional crowding out, Keynesian crowding out and the monetary approach to the balance of payments. Using data for the period 1959.60 to 1986.87 this paper finds the absence of conventional ns well as Keynesian crowding out effects in Pakistan. Nevertheless, this paper finds that increase in fiscal deficit worsens current account balance. - a finding, in line with the monetary approach to the balance of payments. This paper also shows that increase in fiscal deficit reduces private savings, hence investment and growth in Pakistan.

Date: 1991
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