Pakistan Institute of Development Economics



A Comparison of Fiscal Effort by Provincial Governments in Pakistan

Considerable variation exists among Provinces of Pakistan with respect to their abilities to raise revenues. This is due to underlying varied provincial characteristics like area, resources, population, nature of economic activities and provincial GDPs. The main focus of this paper is to make inter-provincial comparison of their fiscal efforts after allowing for difference in taxable capacity. Therefore, objective of such inter-provincial comparisons of fiscal effort is to identify whether provincial revenue collection is limited by capacity (revenue base) or if a province is unwilling to exploit the available capacity to generate revenues.12 This will enable development of the appropriate resource mobilisation strategy for each province and help in enhancing the overall provincial tax revenue to GDP ratio which is currently below 1 percent of the GDP. This analysis will also help policy-makers in designing fiscal equalisation formulae for assisting those provinces which have demonstrated lesser capacity to raise revenues from their own sources.