INVESTIGATING THE EMPIRICAL LINK BETWEEN FISCAL DEFICIT AND ECONOMIC GROWTH: A TIME SERIES APPLICATION

Among many other evils, budget deficit is one of the major macroeconomic problems of Pakistan economy which hinders the growth and development pace. Due to the early complex economic scenario, there were scarce resources available to boost the infrastructure and economic growth. However, several safeguard administrative measures have been taken to fight against adverse fiscal deficit position. In one way government focuses the fiscal consolidation in order to curtail the phenomena of fiscal deficit. On the other, fiscal policy issuers believed that the deficit spending played vital role in the economic stability and growth. Against this backdrop, it is important to investigate the channels through which fiscal deficit affects GDP in Pakistan. Present study checked how fiscal deficit affects the GDP growth rate in short run and long run. Annual time series data ranging from 1975 to 2017 has been taken. Econometric methodology of Vector Error Correction (VECM) has been applied in this study and concluded that fiscal deficit is negatively related to GDP growth. Finally this study presents afew policy recommendations.