Abstract

Government expenditure is a tool of government to provide for goods and services that are not provided by private sector. Government expenditure generates revenue for business it encourages investment and it provides individual income. In Keynesian economics individual consumption is always less then income our consumption variable is household consumption expenditure comprises of expenditure by each household on its needs. Each new budget expenditure increases as per the welfare policy of government and the general trend of consumption is also on the rise in Pakistan. Household Consumption and Government Final Expenditure comprises for more than 20% and 70 % of GDP respectively for Pakistan so it’s important to check for long term and short-term association with economic growth. We used data from 1971 to 2020 and we have utilized unit root test Augmented Dickey Fuller (ADF) to check the stationarity of data. Secondly, Johansson Co-Integration Test is employed to check co-integration at level of Data. Additionally, Vector Error Correction Model is used to check the long run association between study variables. Finally, Granger Causality Test is used to check Causation at different Lag Levels. The findings of study showed support to literature. The results showed that government expenditure, and Household consumption has significant impact on economic growth of Pakistan. We found strong causation between our variables. It implies that Welfare policies related to enhances trade subsidies and sustainable resource allocation boosts economic growth in the economy in the long run as well as short.