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Expenditure-Growth Nexus: Does the Source of Finance Matter? Empirical Evidence from Selected South Asian Countries

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  • Muhammad Iftikhar ul Husnain

    (, Federal Urdu University of Arts, Science and Technology (FUUAST), Islamabad)

Abstract

The study employs the Fixed Effect Model on a panel of four South Asian countries viz., Pakistan, India, Sri Lanka, and Nepal, for the period 1975–2008 to investigate if the source of finance matters in determining the impact of public expenditure on growth. The analysis shows that the source of finance does matter. Seigniorage-financed public expenditure has a larger negative effect on growth, followed by debt-financed and tax-financed public expenditure. Therefore, financing of public expenditure through taxes is the least costly option available with the governments in low-income countries. In general, fiscal discipline through cuts in public spending is required to boost economic growth

Suggested Citation

  • Muhammad Iftikhar ul Husnain, 2010. "Expenditure-Growth Nexus: Does the Source of Finance Matter? Empirical Evidence from Selected South Asian Countries," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 631-640.
    • Handle: RePEc:pid:journl:v:49:y:2010:i:4:p:631-640
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    References listed on IDEAS

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