Instability of government revenues and expenditures: implications for budget deficit in Pakistan

This study investigated the impact of Pakistan's government revenue and expenditure instabilities on its budget deficit from 1972 to 2018. Following Morrison (World Dev 10(6):467–473, 1982), the conditional variance is estimated using the GARCH model to proxy these instabilities. The GMM estimates revealed that the instabilities of government revenues and expenditures caused an increase in the budget deficit. Moreover, the factors like lack of government control over public expenditure, debt servicing, government participation in the economy, and inflation rate also contribute to a rise in the budget deficit. However, government revenues and GDP growth rate reduce the budget deficit simultaneously.