Does Private Saving Offset Public Saving in Pakistan: An Empirical Evidence

Abstract

The aim of this study is to analyze the effectiveness of fiscal policy in Pakistan. Specifically, the study measured the potency of fiscal policy via the relationship between private saving and public saving as a share of Gross Domestic Product (GDP). For estimation purposes, the study used annual data over the period 1973-2018. The study utilized the threshold autoregression (TAR) model to determine the long-run relationship between policy variables in case if adjustment process is nonlinear and the Momentum threshold autoregression (M-TAR) in the case to adjust larger changes in the policy variables. The magnitude of offset coefficient (ranges between -0.51 to -0.63) between private and public saving is estimated through Ordinary Least Square (OLS), Dynamic Ordinary Least Square (DOLS), and Fully Modified Ordinary Least Square (FMOLS). Since the result suggests very small fiscal multiplier, therefore any effort of fiscal authority to run a surplus budget and raise public saving is impotent.