Elasticity and Buoyancy of Federal Taxes in Pakistan

This paper focuses on the revenue-expenditure activities of the federal government and evaluates the performance of the fiscal system on the basis of estimates of revenue productivity. Two methodologies for the estimation of the short-run and long-run elasticity and buoyancy for tax revenue are evaluated. It is found that the Divisia Index method is superior on both theoretical and practical grounds and the results obtained are substantiated by the proportional – adjustment method. The study finds that the built-in elasticity of Pakistan’s tax system was greater than unity.