IMPACT OF FISCAL POLICY ON ECONOMIC GROWTH IN A DEVELOPING ECONOMY
IMPACT OF FISCAL POLICY ON ECONOMIC GROWTH IN A DEVELOPING ECONOMY

Summary/Abstract: The purpose of the study was to evaluate the impact of fiscal policy on economic growth in a developing economy using Uganda data. The study specifically investigates effect of government expenditure, government tax revenue, and government non-tax earnings on economic growth of a developing economy using cointegration and regression analyses on annual data for the 1985 – 2016 periods. The estimates from the preliminary analysis show that both the economic growth (GDP) series and fiscal policy variables are integrated of order one (I(1). Results from cointegration model show evidence of long-run relationship between fiscal policy and economic growth. Estimates from the regression model suggest that public expenditure and tax revenue have positive and significant effect on economic growth. The results further show, however, that non-tax revenue does not have significant effect on the economic growth. These findings should propel fiscal policy-makers to formulate expenditure and tax policies to ensure productive expenditures are sustained while at the same avoid tax regimes that are directly targeted at the low-income households.

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