Role of Public Revenue and Public Expending in Achieving Sustainable Economic Development in the Perspective of Local Project Approach

Abstract

Stabilization of the economy is a top priority; hence fiscal policy is heavily used to reorient the economy. However, little research is being conducted in Pakistan on the effect of allocating
public income between productive and nonproductive costs on long-term economic growth. For this purpose, the study organized a dynamic association among government revenue, productive and nonproductive expenditure, and sustainable economic development spanning 1978-2021 from the perspective of ARDL and local projects with an impulse response function. The findings elaborate that a 1% increase in direct and indirect tax, productive expenditures, and money circulation will assist in attaining sustainable economic development by 0.32%, 0.219%, 0.63%, and 0.35%, respectively. Moreover, all diagnostic tests (coefficient, residual, and stability) favor the study. At the same time, the local project with impulse response reveals that indirect tax, money circulation, and productive and nonproductive expenditures positively participate in future time to attain sustainable economic development. Therefore, the government should educate people that tax is the responsibility, not the penalty. Moreover, the government should carefully employ public revenue to attain sustainability.