Analysis of Political-Administrative and Economic Determinants of Public Revenue: Evidence from Pakistan

Abstract

Objective: This research intended to identify the economic and political determinants of public revenue in Pakistan.

Research Gap: This study aims to explore the determinants of tax revenue in Pakistan, with a focus on identifying the key factors and variables that influence and affect tax collection and proposing potential solutions to improve the tax system.

Methodology: It employed TSD from 1980 to 2024. The study employed the Augmented Dickey-Fuller Test, Autoregressive Distributive Lag model, and Error correction Model for the analysis of the data.

The Main Findings: The results for determinants of tax revenue showed that agriculture output, Fiscal Decentralization, Political Stability and Public Expenditure has positive impact on tax revenue. The inflation and unemployment has inverse impact on the tax revenue. The manufacturing value added and GDP has a lagged structure relationship with tax revenue having negative relationship in current time and positive in lagged time.    

Practical implication of the Findings: This study suggested that to enhance Productive Government Expenditure Govt should redirect public spending towards growth-stimulating sectors like infrastructure, education, and health. The government should also Foster a stable political environment to build investor confidence and improve tax compliance. Implement long-term policies to support the manufacturing sector and encourage formalization. Govt should introduce presumptive taxes on agricultural income and land to address under-taxation. This study also suggested that to reduce unemployment Govt should take measures to attract FDI, focus on skills development, and initiate labor-intensive projects.