Liar Liar Pants On Fire is a phrase that children like to scream at each other whenever they think the other is lying. They also like to scream it at adults who tell them stories about fairies. It is an overall stupid thing to say, since if your pants actually caught on fire when you lied, more politicians would be dead.
In my experience when I was growing up," Liar Liar Pants On Fire" refereed to the ass whipping you would get if your parents caught you lying.You felt like your pants were on fire afterwards
Being from newfoundland, we have a strong British heritage. I always understood it to be a reference to witches burning at the stake. Your pants or skirts would be the first thing to catch fire.
Person on stake while fire burns, sees their pants catching aflame
"Please! I'm Innocent! "
Crowd "liar liar pants on fire