Fiscal Determinants of Inflation in Pakistan

Bilal Raza () and Khurram S Mughal ()
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Bilal Raza: State Bank of Pakistan
Khurram S Mughal: State Bank of Pakistan

No 108, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: This study explores relevance of Fiscal Theory of Price Level for Pakistan, which postulates that fiscal variables also play a role in determining inflation. We have used Autoregressive Distributive Lag model over the period of FY2000Q1-to-FY2019Q3. Unlike most of the previous studies that used only aggregate measure of fiscal deficit, we also have tested for disaggregated fiscal variables on the revenue side. The article finds inflation in Pakistan is a multidimensional process; and fiscal variables along with monetary and supply side factors contribute significantly towards inflation. In particular, we find that different variations of disaggregated fiscal variables like total tax, indirect tax and sales tax are important determinants of inflation.

Keywords: Fiscal; Monetary; Inflation (search for similar items in EconPapers)
JEL-codes: E31 E52 E62 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2022-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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