Impact of Fiscal Decentralization on Private Savings in a Developing Country
Imran Hanif and
Pilar Gago- de Santos
Journal of South Asian Development, 2017, vol. 12, issue 3, 259-285
In this article, we provide empirical evidence on the long-run relationship between fiscal decentralization and private savings in a developing country. We take into consideration the particular impact of fiscal decentralization on private savings and investment as vehicles for fostering growth in Pakistan over a period of almost four decades (1972â€“2010). Additionally, we use the same dataset to capture the short-run dynamics between these variables. We find a significant and positive correlation between fiscal decentralization and private savings in Pakistan during the period in question. To test this relationship for the long run, we have resorted to co-integrated variables; by contrast, for analysis of the short run, we used a vector error correction model (ECM). Private savings are positively correlated with the fiscal decentralization process from a revenue perspective. Though previous empirical studies have shown mixed resultsâ€”in the sense that inconclusive outcomes still prevail when linking growth and fiscal federalismâ€”our findings could be of major interest to other developing countries currently undertaking fiscal decentralization. According to our analysis, fiscal decentralization may indeed play a key role in promoting economic growth in developing countries.
Keywords: Fiscal decentralization; economic growth; savings; developing countries; Johansen test; Pakistan (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:soudev:v:12:y:2017:i:3:p:259-285
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