Public Debt and Fiscal Responsibility in a Federal Structure: The Case of Pakistan

TAHIR, Nadia; TAHIR, Pervez
July 2012
Romanian Journal of Fiscal Policy;Jul-Dec2012, Vol. 3 Issue 2, p27
Academic Journal
A recent amendment in Pakistan's federal constitution allows provinces to borrow domestically and abroad. There is a concern that it may generate unsustainable debt burden, considering the country's delinquent monetary policy and a historical deficit bias. The objective of this paper is to assess sustainability of public debt. First, we use Cecchetti, et al. (2010) methodology to regress public debt on indicators of fiscal stance i.e. primary deficit and structural deficit at federal level for the period 1976-2011. We conclude that fiscal stance remained opportunistically expansionary. Next, we look at debt sustainability and its implications for macroeconomic management at provincial level by separating the effects of growth and inflation on provincial public debt, interest payments, and primary balance by using the framework of Liu, et al. (2009). Our findings suggest declining debt sustainability at provincial level, which calls for a strong regulatory framework and coordination between federal and provincial debt strategies.


Related Articles


    The central question this paper seeks to answer is how monetary policy might affect the equilibrium behavior of default and sovereign risk premium. The paper is based on a "one-interest-rate" model. Public debt becomes risky due to an active fiscal policy, as in Uribe (2006), reflecting the...

  • Inflation, Taxes, and the Public Debt. Marty, Alvin L. // Journal of Money, Credit & Banking (Ohio State University Press);Nov78, Vol. 10 Issue 4, p437 

    The article focuses on the monetary and fiscal policies used to address predicted inflation shifts, particularly in regards to measures of inflation rates and the consequences on taxation policy instruments to control the phenomena. Two contrasting scenarios are modeled wherein inflation events...

  • THE NEED FOR MILITANT MODERATISM. McKinney Jr., George W. // Challenge (05775132);Mar/Apr83, Vol. 26 Issue 1, p39 

    Conventional theory today provides a good explanation of the relationship between deficits and inflation. As a first step, it requires an assumption that all "other things" are held equal. This approach is necessary to keep from getting confused over different kinds of monetary policy or...

  • Fiscal and Monetary Policies Interrelation and Inflation over the Long Run: Testing Sargent and Wallace's View for the United States. GLENN, LOWELL M.; SAMAD, ABDUS // Journal of Business Inquiry: Research, Education & Application;2012, Vol. 11 Issue 1, p58 

    This paper focuses on long-run estimation of the price equation in the United States for the period of 1973Q1-2011Q3. It was found the Sargent and Wallace view that an easy monetary policy today will result in a lower price level over the long run when debt and deficit exist is true for the...

  • KAMU BORÇ STOKUNUN AZALTILMASINDA MALÄ°YE POLÄ°TÄ°KALARININ ROLÃœ. Göker, Zeiha // Akdeniz University Faculty of Economics & Administrative Science;kas2005, Vol. 5 Issue 10, p163 

    In this paper expansionary fiscal contractions and their role in reducing the public debt ratio are examined. The important determinants of the success of fiscal contractions are specied by the composition, size and persistence of fiscal adjustments, the expectations and the initial level of...

  • Learning the monetary/fiscal interaction under trend inflation. Florioa, Anna; Gobbi, Alessandro Q. // Oxford Economic Papers;Oct2015, Vol. 67 Issue 4, p1146 

    How does a higher inflation target affect determinacy and learnability of rational expectations equilibria under alternative monetary/fiscal policy mixes in new Keynesian models? What is the role of central bank transparency? This article proves that in a non-Ricardian regime, determinacy and...

  • Sacrifice Ratios and Monetary Policy Credibility. Durham, J. Benson // Working Papers -- U.S. Federal Reserve Board's Finance & Economi;2001, p1 

    This paper investigates sacrifice ratios, an imperfect measure of the tradeoff between inflation and aggregate output, and the credibility of monetary policy. The author attempts to expand on prior research of the determinants of sacrifice ratios. He suggests that the literature does not...

  • Fiscal and Monetary Policy in a Basic Endogenous Growth Model. Greiner, Alfred // Computational Economics;Feb2015, Vol. 45 Issue 2, p285 

    We present a monetary endogenous growth model and analyse the effects of fiscal and monetary policy with real money as an argument in the utility function. We show that a balanced government budget gives a higher balanced growth rate and lower inflation than a situation with permanent public...

  • Interaction between Fiscal and Monetary Policy in a Dynamic Nonlinear Model. Bertella, Mario A.; Rego, Henio A.; Jr.Neris, Celso; Silva, Jonathas N.; Podobnik, Boris; Stanley, H. Eugene // PLoS ONE;Mar2015, Vol. 10 Issue 3, p1 

    The objective of this study is to verify the dynamics between fiscal policy, measured by public debt, and monetary policy, measured by a reaction function of a central bank. Changes in monetary policies due to deviations from their targets always generate fiscal impacts. We examine two policy...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics