Does Fiscal Decentralization Matter for Poverty Reduction? Empirical Evidence from Pakistan

Abstract

The proposed study examines how fiscal decentralization alleviates poverty in Pakistan over the period 1990–2023. Focusing on two key dimensions, expenditure decentralization and revenue decentralization, the analysis draws on secondary data from the World Development Indicators and the Statistical Yearbook of Pakistan. An Autoregressive Distributed Lag (ARDL) framework is used to apprehend both short-run and long-run dynamics between fiscal decentralization and poverty reduction. The findings disclose that government expenditure contributes to poverty reduction, though at a diminishing rate, reflecting inefficiencies from corruption and weak governance structures. In contrast, revenue decentralization exhibits a robust and increasingly positive impact on poverty alleviation over time, underscoring the importance of effective tax collection, enhanced fiscal autonomy, and sustained economic development. Overall, the results suggest that strengthening revenue-based decentralization mechanisms can play a pivotal role in designing more inclusive and effective poverty-reduction policies in Pakistan.