1. HUMA SADIA - M. Phil Scholar, Federal Urdu University Islamabad.
2. Dr. ADNAN JAMIL - Assistant Professor, Department of leadership and Management studies (LMS), National Defence University, Islamabad, Pakistan.
3. FAISAL SALEEM - PhD Scholar, Asia Metropolitan University, Malaysia.
4. UMMULMEENA - PhD Scholar, University of Cyberjaya, Selangor, Malaysia.
The fiscal deficit is a gigantic problem for Pakistan. There are many causes of fiscal deficit. This study tries to find out the determinants of the fiscal deficit in Pakistan. This study selected tax revenue, tax rate, wage bill, FDI, military expenditure, and taxation on public investment as independent variables. The range of the data is from the years 1975 to 2019. This study applied econometric estimation to get the results from the data. The ADF (Augmented Dickey-Fuller 1979) is applied to verify the stationary values of the variables. Auto Regressive Distributed Lag Model (ARDL) is used to examine the long-run relationship among the variables. The structural stability test is carried out by applying CUSUM & CUSUMSQ. In the end, this study also checks the autocorrelation of the variable by the VEC test. This study concludes that the high tax rate has a positive effect on the fiscal deficit but tax revenue, wage bill, and taxation on public investment have a negative and significant impact on the fiscal deficit. In the end, this study suggests that government should revise the tax imposed policies.
Fiscal deficit, ARDL technique, VECM.