Essays in fiscal decentralisation effects on economic growth, health and education

The first essay discusses the effects of fiscal decentralisation on economic growth in Pakistan, where the resource distribution formula was based on single-criterion (i.e. population only). Following the cointegration approach, this is the first ever study to disentangle the short run effects of fiscal decentralisation from its long run implications on the economic growth in Pakistan. The automated general-to-specific (Gets) modelling technique was adopted to find a representative parsimonious model, for a relatively short time series dataset. The study identified that in Pakistan, the focus mainly remained on partial fiscal decentralisation, where the provinces remained dependent upon federal transfers. Evidence suggests a long run cointegrating relationship between fiscal decentralisation and economic growth, making us aware of the immediate consequences of a resource shift policy, in addition to its long-run effects. Analysis suggests that in order to stimulate economic growth, emphasis should be shifted towards entrusting provinces with higher taxation powers. In addition, the diversification of the resource distribution formula, with the inclusion of efficiency enhancing measures, might also help in achieving higher economic efficiency. Education and health sectors are known to have massive impact on the quality of human life. In this context, health sector is discussed in the second essay to analyse the impact of fiscal decentralisation on various health sector indicators in Pakistan. Two datasets were used for the separate analysis of the national (1974-2009) and provincial (1980-2001) health indicators. It was learnt that health sector remained neglected both at the national and provincial level. To a surprise, negative long run cointegrating relationship was found for the effects of federal transfers on health expenditures at the national level. The provincial analysis however suggests that federal transfers improved hospital beds availability in the economically active provinces, which were presumably more efficient. Provincial autonomy failed to play a role in the improvement of the health sector. The analysis highlights the social implications of federal transfers. Differences in results for economically distinct provinces hint towards the efficiency aspect of resource utilisation.