<p>The study aims to examine the dynamic impact of foreign aid and institutional quality on government fiscal behavior using annual data from 1984 to 2022. Government expenditure is used to measure the fiscal behavior, while Structural Vector Autoregression (SVAR) model is employed for empirical estimation. The findings suggest that foreign aid and institutional quality positively and significantly influence government expenditure, whereas revenue has a negative long-term effect on government expenditure. Additionally, we employed Forecast Error Variance Decomposition (FEVD) to assess the proportion of forecast error variance of each variable that is attributable to each structural shock. The results obtained from the forecast error variance decomposition of the SVAR model indicate that in the short term, institutional quality (IQ) has a strong impact on government expenditure, whereas in the long term, foreign aid followed by revenue exerts a substantial influence on government expenditure. This finding underscores the importance of foreign aid and institutional quality for policy makers aiming to foster prosperity through efficient government spending in Pakistan.</p>