Democracy, Inequality and Economic Development: The Case of Pakistan

In this paper, we made an attempt to understand the costs and benefits of democracy for economic growth in Pakistan by analyzing the relationship between democracy and its various measures. Using instrumental variables and RALS (rth-order autoregressive least squares) estimation techniques, it is shown that during the period 1972-2005, there is only a tenuous and uncertain relationship between democracy and fiscal policy variables like expenditures, revenues and deficit; whereas democracy has no impact at all on the income inequality. Moreover, we observed that the political rights had a significant negative impact on fiscal expenditures, suggesting that with an increase in political rights, the governing institutes begin to feel themselves more accountable and as such are more circumspect in expenditures.