Effect of inflation on budget deficit in Uganda
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Date
2019-05
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Publisher
Kampala International University
Abstract
The study sought to establish the effect of inflation on budget deficit in Uganda 1991-2016. The factors identified in the study are Budget Deficit Rate, Interest Rate, Inflation Rate, Foreign Exchange, Foreign Direct Investment and Gross Domestic Product. The theory that was guiding this study is the Neoclassical theory. The reason behind conducting this study was the increment of inflation at a decreasing rate. The study used quantitative data in form of secondary data from Uganda for a 25 years’ period from 1991 to 2016. All the data was expressed in terms of percentages and co-integration design was considered appropriate as it enables the establishment of the long run relationship among the variables. The short run effect of inflation on budget deficit has been conducted by using ECM. Under co-integration the findings were showing a presence of a long run relationship in the variables in the study and for the short run there was negative and significant relationship between Inflation and Budget Deficit. From the findings, the researcher concluded that the effect of inflation on budget deficit depends on how the funds financing the deficit were used, if it was used for development purposes then it would have a positive one on the budget deficit but if it is for meeting the recurrent expenditures then there would be a negative relationship between the two. The study recommends that Uganda should broaden and manage efficiently the tax base in order to finance their expenditure adequately and help increase the multiplier that further generate output hence reduces budget deficit incidents. The study also recommends that Uganda should create more revenue sources to increase the income to reduce dependence on developed countries and also to create conducive environment for more opportunities. The study contributes that there is a need for Ugandan government to support the growth in the real sectors of the economy such as the agricultural sector and manufacturing sector by encouraging investors to have access to investable funds from banks; as suggested by alavirad, a and athawale, s. (2015) in their study the impact of inflation on budget deficit in the Islamic republic of Iran so that incidents of budget deficit is checked
Description
A Research Thesis Submitted To The College Of Economics And Management In Partial Fulfillment Of The Requirement Of The Award Of Master Of Arts In Economics Of Kampala International University
Keywords
Inflation, budget deficit, Uganda