Fiscal policy in underdeveloped countries : a case study in Pakistan

Includes bibliographical references.Fiscal policy is considered a powerful weapon when used by less developed countries in effecting development plans. The goals of the tax system in a developing economy should be to (1) curtail consumption to free resources for investment, (2) reallocate resources according to priorities, (3) provide government with adequate revenue, and (4) create incentives to facilitate growth. A survey of Pakistan's economic growth, since partition from the Indian subcontinent in 1947, reveals a relatively remarkable expansion, when compared to other underdeveloped nations. Over-all economic development is widely regarded as more than satisfactory and the expansion of industrial output is considered impressive. This study is an attempt to determine the effect of fiscal policy on the rate and direction of growth in Pakistan. This study consists of five chapters. The introduction discusses briefly the reasons behind partition and the political and social setting in Pakistan after partition. The second chapter views the geographical features of the economy, trends in the population, trends in agriculture, deposits of minerals, endowment of water resources, status of industry and trade, and the balance of payments posture since partition. This is followed by a study of the evolution of the planning machinery over this period. With this foundation established, the third chapter compares Pakistan's tax policy with theory of taxation and other policy incentives to growth and development. Chapter IV evaluates the effects of fiscal policy on Pakistan's development. In the last chapter, because of the long-established, common links and background between India and Pakistan, Pakistan's growth is compared with that of India. Finally, Pakistan's present fiscal policy is analyzed; desirable changes in policy are pointed up; and possible improvements in present policy are suggested. Although important, and the main consideration of this study, fiscal policy is only one of several tools a government can utilize to encourage economic growth. In Pakistan, it was found that fiscal policy played a minor role in directing the progress of development. Rather, the problems brought about by partition, decisions concerning devaluation, and the use of quantitative restrictions to control imports determined, to a large extent, the course of economic growth in Pakistan.M.A. (Master of Arts