Effect of fiscal policy on economic growth in Uganda (1985-2016)
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Date
2018-07
Authors
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Publisher
Kampala International University. College of Economics and Management
Abstract
The purpose of the study was to investigate the effect of fiscal policy on economic growth in
Uganda (1985-2016). The study objectives were (i) To determine the effect of government
expenditure on economic growth of Uganda (ii) To examine the effect of government tax
revenue on the economic growth of Uganda and (iii) To assess the effect of government non tax
earning on the economic growth of Uganda. The study was entirely secondary data which was
collected from World Bank and OECD and world economic indicators on government
expenditure, tax revenue, non tax revenue and economic growth in Uganda shillings (LCU)
period of 32 years. The study used time series analysis Ex-post facto design based on
quantitative techniques to analyze secondary data scientifically to critically conclude the research
objectives. The study conducted a series of tests ranging from unit root test, normality tests,
regression analysis and serial tests to establish the status of the variables and also establish the
effect of the variables using regression. The study findings indicate that all the coefficient of the
Tax revenue significantly correlated to economic growth at 0.00 1 while public expenditure and
non tax revenue was statistically not significant at 5% level of significance in explaining
variations in economic growth in Uganda because their p-values 8.17 for public expenditure
0.001 for Tax revenue and 0.802 for Non tax revenue are all less than 0.05. The study concludes
that public expenditure was increasing over the period of the study; the results reveal that the
public expenditure had a significant effect on economic growth in Uganda. The study concludes
that public expenditure needs to be improved for attaining economic growth of Uganda. The
study findings on the second objective conclude that tax revenue was increasing over the time
and the effect was significant, the study concludes that the tax revue increase lead to generation
of values for the economy and need more comprehension for attaining economic growth of
Uganda. The study finally established that the non tax revenue earnings had a low effect on the
growth in Uganda. The study on overall concludes that fiscal policy had high effect on economic
growth Uganda’s economic growth for Uganda from 1985 to 2016. The studies recommend that
there is need for government increase in expenditure on social services and rejuvenation of
infrastructure. There is need for government policy ensuring quality and sustained growth that
can potentially improve the pace of Uganda’s economic advancement. On the second objective
tax revenue contributes to improved economic growth. There is need for increasing revenue
generation preferably through encouraging investments and supporting the creation of small
business that can yield capital in order to generate more tax revenue for economic growth. The
third objective recommends that there is need for generation of non tax revenue through
improving accessibility to the tourism sector and growth of the tourism sector including gazeting
the economic activity that generates the tax. The study contribute to prominent findings from this
study is the fact that it has provided evidence to support the Keynesian theory. Indeed, economic
growth or GDP can significantly be increased with public expenditure increase and tax revenue.
It is now clear that an effective tax regime generates economic growth of a country. This is
contrary to common belief that taxes alone cannot generate growth.
Description
A research report submitted to the college of economics and management as a partial fulfillment of tile requirements for award of master’s in economic planning ani)policy of kampala international university
Keywords
Fiscal policy, economic growth