Pakistan Journal of Applied Economics

107-126

Authors: Muhammad Farooq ARBY**

A new Income Tax Audit Scheme was introduced in Pakistan in the budget 1993-94. In fact. it was a modified form of immunity Scheme of the early 1980's. This paper attempts to analyse the new scheme on the basis of the tax evasion theory. Our analysis shows that this scheme induces those taxpayers, who have been selected for audit at least once in the preceding three years, to participate in it and to raise their declaration. However, the majority of taxpayers (who were not audited previously) exploit the scheme and drop their declaration level. Thus, it does not meet the objectives of the policy makers. Moreover, our analysis reveals that the scheme is pro-corruption.

1-30

Authors: Abid A. BURKI & Uzma AFAQI*

The importance and usefulness of the informal sector (IFS) is now well-established in the development literature. In this paper, we survey the rapidly growing literature on Pakistan's informal sector and attempt to synthesize recent empirical evidence. We envisage that the IFS has gained overwhelming importance in recent years due to its size, earnings potential, employment and skill generation, and growth potential for the firms. In particular, we focus on earnings functions, skill formation under ustad-shagird system, and prospects for firm's growth by examining the macro policy environment, sub-contracting arrangements, access to capital, technology adaptation, markets, and firm's location. Working womens' production relationships are also illustrated briefly. We present areas where government assistance could be useful for this sector's development in future. We note, that due to gaps in the coverage of existing research, it is difficult to draw inferences for economic policy in some areas.

67-84

Authors: Muhammad Aslam CHAUDHARY & Sh. Shahbaz ALI*

It is generally felt that foreign resources (debt) has not played its role in development, rather it has become a burden for the economy. Pakistan's foreign debt has grown over at I I per cent per annum, compared with recent economic growth of less than 4 per cent. In this paper an attempt is made to model foreign debt and make predictions forit till the year20 I O. The model indicates that, although, foreign debt burden is not very severe now. it will become unsustainable in the future. The entire growth of the economy could be wiped out by debt services. if it is not properly managed. Alternative policy options are proposed to solve the debt crisis even before it emerges.