Effect of Fiscal Policy on Economic Growth in Uganda (1985-2016)

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, nontax 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 coiTelated 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 generate 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.