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DISTRIBUTIVE EFFECTS OF GOVERNMENT EXPENDITURES AND TAXES: A CASE STUDY OF PAKISTAN, 1979, 1986-87,1992-93, 2001-02

Ilyas, Muhammad (2004) DISTRIBUTIVE EFFECTS OF GOVERNMENT EXPENDITURES AND TAXES: A CASE STUDY OF PAKISTAN, 1979, 1986-87,1992-93, 2001-02. PhD thesis, International Islamic University, Islamabad.

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Abstract

This study analyzes the distributive effects of government expenditures and taxes in the urban-rural areas of Pakistan in 1979, 1986-87, 1992-93 and 2001-02. Government financial accounts seldom provide proper identification of the beneficiary or payer. Therefore, it has been tried to use the best-correlated data available to find out an appropriate, though rough, imputation. Such data are in various forms, like expenditures of households on education and medical care, agriculture income of households, consumption pattern of taxed commodities and so on. In both urban-rural areas the values of average expenditures show decreasing behaviour through lowest to highest income group (pro-poor). However urban average expenditure rates have remained more pro-poor than that of in rural areas in 1979, 1986-87, 1992093 and 2001-02. By the same token, the tax burden has been measured by the average tax rates. The patterns of tax incidence have shown that they are pro-rich in nature. However, behaviour of rural average tax rates has been proven more-pro-rich than that of its urban counterpart in 1979, 1986-87, 1992-93 and 2001-02. Statistical test has shown that pre-and post fiscal incomes are significantly different in urban-rural areas at the I percent level in all four years. Moreover, it is found that there exist a positive relation between the extent of equality achieved through the government expenditures and taxes, and the extend of corresponding decrease in the poverty level in urban-rural areas in all four years. The zakah and ushr system in Pakistan has been proven pro-poor in urban-rural areas in 1986-87, 1992-93 and 2001-02. In 1986-87 zakah and ushr system was more pro-poor in urban areas than that of the rural areas. Whereas, in 1992-93 and 2001-02 the effects of zakah and ushr on the distribution of income were larger in rural areas than that of the urban areas. A formal statistical test has shown that the differences between pre-fiscal and post-zakah and ushr distributions were found to be statistically significant at the I percent level in both urban and rural areas in each year. Disaggregation has shown that the distributive affects of government expenditures, especially, education and health expenditures were smaller for rural areas than that of the urban areas. On the other hand, pro-rich behaviour in the tax structure of urban-rural areas, in general, is due to larger portion of indirect taxes relative to the direct taxes in the total tax collections. Moreover, regressivity in the rural tax structures in all four years have been attributed to the negligible amount of direct taxes paid by the high income groups and heavier burden of indirect taxes on the low income groups. Hence it has been suggested that policy makers should be conscious about the composition, quality and magnitude of government expenditures, especially, education and health expenditures allocated to urban-rural areas. While, the tax structure should have larger portion of direct taxes rather than indirect taxes to achieve the objective of fair distribution of income in urban-rural areas of Pakistan.

Item Type:Thesis (PhD)
Uncontrolled Keywords:pakistan, nnp, expenditures, taxes, fiscal index, zakah, ushr, government expenditures, government financial accounts, rural areas , urban areas
Subjects:Social Sciences(g) > Economics (g5)
ID Code:493
Deposited By:Mr. Muhammad Asif
Deposited On:05 Aug 2006
Last Modified:04 Oct 2007 21:01

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