Abstract

This study explores the dynamics of government spending composition in Pakistan, focusing on its impact on economic growth and poverty reduction. The study analyzes subcategories of public expenditures, including current and capital spending, and functional classifications such as education, health, physical infrastructure, and defence. Using the ARDL framework, the study finds a long-run relationship between public spending and economic growth, with capital spending positively impacting GDP growth while current expenditures have a negative effect. Education and physical infrastructure expenditures contribute positively to economic growth, while health expenditures negatively impact the long run. The study also disaggregates health and education expenditures to analyze their economic impacts. Expenditures on research and curriculum development in education and subsidiary transportation services positively affect economic growth. However, primary and secondary education expenses and tertiary education expenditures do not show a significant growth impact. Similarly, expenditures on hospital services, patient health services, and research and development in health do not contribute to economic growth. The study concludes that the composition of public expenditures is related to poverty reduction, with total government spending and investments in education, health, and physical infrastructure playing a significant role in poverty reduction.