EFFECTS OF FISCAL POLICY ON HUMAN DEVELOPMENT IN SRI LANKA: AN EMPIRICAL ANALYSIS

Sangaran  Vijesandiran; Priyatharsiny  Selvarasa

Sangaran Vijesandiran Department of Economics and Statistics, University of Peradeniya
Priyatharsiny Selvarasa Department of Economics and Statistics, University of Peradeniya

Abstract

Human development leads to growth cause by increased human capital, labour productivity and skilled labour through improving human capabilities. Sri Lanka, has a higher score in Human Development Index (HDI) and achieved highest standard among South Asian Countries. However, the efficacy of public spending on human development in Sri Lanka has become a widely debatable issue. Hence, the objective of this paper is to empirically examine the impact of fiscal policy on human development in Sri Lanka using annual data set for the period from 1977 to 2017. ARDL Bound test procedure is applied to test the long-run and the short-run relationship. This study concludes that favorable fiscal policies focusing on public spending and taxation have immediate effect on human development in Sri Lanka. Therefore, the Sri Lankan government need to develop a progressive fiscal policy framework to create a supportive environment to achieve higher standard of human development and sustainable economic growth in the future.