Estimating the Footprint of Government on the Economy (Article)

1. INTRODUCTION

Total Government Expenditure and the percentage that it represents of the total Gross Domestic Product (GDP) is often taken as a measure of the size of the government’s footprint and its involvement in the economy. A low percentage reflects that the government’s capacity to influence the economy through fiscal instruments is limited, and low rates are often cited as prime reasons for governments pursuing aggressive taxation policies to build their financial muscle. In Pakistan, the general government expenditure as a percentage of GDP stands at about 22 percent. Many quarters, including multilateral donors agencies, have persistently called for the government to increase its tax revenue collection capacity through either increasing its tax rates and/or increasing the number of total tax filers in the country because the government is always in a deficit. The issue of the tax system in Pakistan is a separate matter and has been discussed through various other PIDE publications over the years.