Income and Expenditure Relationship in Local Municipalities: A Case Study of Sindh Province

Abstract

This research paper examines the effect of income over expenditures in local municipalities of Sindh. The major income sources are provincial grants and local revenue generated through local taxes and bills. The relationship between income and expenditure is analyzed through Ordinary Least Square (OLS) and Fixed Effect Method (FEM) using time series data (for years 2014-2023) and panel data includes time and entities. The results reveal a significant positive effect of income on expenditure. The relationship shows that expenditure increases more than income both individually and collectively. Surprisingly, these local municipalities do not default despite higher expenditure than income as per relationship. However, the income estimate of both time series and panel data estimation method is larger than unity value. This could be because expenditures on municipal services are investments which return in the form of income. This relationship may be exploited and upscaled to increase local income of municipalities.