Bridging the Gap: Evaluating Fiscal Interventions for Poverty Reduction in Pakistan

Abstract

This work aims to find out role of fiscal policy on poverty reduction in Pakistan with special reference to government expenditure, taxes and stability. The study applied the bounds testing of Autoregressive Distributed Lag (ARDL) approach with the view to deeping into the effects that fiscal variables such as spending on education & health, income and sales tax on poverty. For the purpose of the analysis, the sample includes companies with data available between 1980 and 2023. Therefore, the findings suggest that there is significant inputs from the government’s side spending especially on education and health prospects that have great impact on poverty alleviation. However, the current regime of taxation exacerbates the economic problems for households particularly on the poor ones. The two fold aim of fiscal policy as envisaged in the study is aimed at promoting sound economic growth as well as actualization of income redistribution. More to the point, it raises the stakes of implementing specific fiscal measures such that, unless carefully designed and undertaken, they can actually worsen poverty. The paper underscores the need for provoking structural fiscal reforms in Pakistan to pursue equitable taxes and better reforms in public spending, in pursuit of a sustained poverty alleviation. The work furthers the broader discourse exploring the effectiveness of fiscal policy for developing countries, and illuminates the challenges for and potential in using fiscal measures to achieve greater fairness in developing countries.