Fiscal policy determinants impact on the economic growth with the moderating role of the exchange rate and Inflation rate: Evidence from an emerging economy

Abstract

Fiscal policy determinants are crucial for economic development because they directly influence government revenue, expenditure, and overall economic stability. Effective management of these determinants, such as tax rates, public spending, and inflation control, can promote sustainable growth, reduce poverty, and enhance the resilience of an economy against external shocks. The study aims to explore the relationship between fiscal policy determinants and economic development with the moderating role of the exchange rate and as well as inflation rate. The annual data of Pakistan from 2000 to 2023 are used for analysis. The regression analysis is used for methods of estimation. Our results show that tax revenue increases economic development due to significant positive relationships. The trade surplus also has a significant positive relationship. Moreover, government expenditure has a significant negative relationship. Foreign aid also has a significant positive impact on economic development. Moreover, the exchange rate and inflation rate play a moderating role in enhancing the relationship between fiscal policy determinants and economic development with significant intention. Our study advocated the significant policy implications for investors, government, and legislators.