Income inequality is one of the critical barriers to growth and development in most of the developing countries including Pakistan. Every third man in Pakistan falls below the poverty line1. Moreover, the budget deficit has also been a serious issue throughout the history of Pakistan‟s economy. The persistent budget deficit is the constant source of increasing poverty and deterioration of income distribution. Since deficit is financed by increasing indirect taxes and money supply, it causes the reduction in purchasing power and leads the masses towards poverty [Arif and Farooq (2011)]. Therefore, it is a dire need of the economy to have a good public policy such that it could reduce budget deficit, alleviate poverty and redistribute income. Malik and Saqib (1985) suggest that the resources of the economy can be distributed equally only through appropriate changes in the tax system. Fiscal policy can have a significant influence on removing the gap between haves and havenots both directly and indirectly. It directly affects the disposable income of individuals, whereas affecting their future earning capacities indirectly

This study constructs and examines the dynamics of theoretical and atheoretical measures of global liquidity, using monthly data on the components of broad money over the period 2001 M12-2017 M12 for 39 high income countries. We group the countries into five regional blocks as categorized by the World Bank: East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, and North America. The atheoretical measures exploited by this study comprise of the simple-sum, GDP-weighted growth rates and PCA based aggregation methods; whereas theoretical measures include the currency equivalent and Divisia index techniques of monetary aggregation. We employ a graphical approach to investigate the trends and dynamics of the aggregates overtime, and a cross-correlation between cyclical components of global real economic activity and the lag of cyclical components of the measures of global liquidity to gauge the strength of their associations. The findings of this study reveal that theoretical measures outperform atheoretical ones in effective delineation of financial and liquidity conditions, and policy stance. Their cyclical components are also strongly associated with those of global real business activity. The currency equivalent measure, besides being a leading indicator of the shift in policy stance, has a sturdy association with global real business activity. Moreover, the theoretical measures, as noted by some empirical studies, contain some information content that the atheoretical lack.