ABSTRACT
This study intends to evaluate the effectiveness of fiscal reforms in lowering the national debt and their effects on Pakistan’s economic growth. Findings from such an investigation of the composition of fiscal adjustment show that while spending-based consolidation significantly lowers the debt-toGDP ratio, it has a contractionary effect on the economy as a whole. This brings to light an important feature of Pakistan’s public expenditure structure: while adopting austerity measures, the government prefers to reduce capital spending on items that are less politically contentious. Additional findings showed that, despite playing a significant role in producing an expansionary effect, modifications to current spending do not successfully reduce public debt. Even though descriptive analyses cannot prove a cause-and-effect relationship, success seems to be impacted by tax-side adjustments. Similar to this, the structure of direct and indirect taxes also raises the possibility of fiscal adjustment success. According to the analysis, the composition of direct taxes has minimal bearing on both the success and impacts. To minimize adverse effects, the government should rely on spending-based adjustments. In addition, altering the ratio of government spending in favor of capital investment is probably going to spur economic growth and help the nation meet its MDGs.
