The Impact Of Government Revenue In Form Of Taxes, Inflation, And Government Expenditure On Economic Growth In Kenya From 1992-2012.

ABSTRACT

The purpose of this study was to establish the impact of taxes, inflation and government

expenditure on economic growth in Kenya. The study sought to establish the effect of taxes on

economic growth, the effect of inflation on economic growth and the effect of public expenditure

on economic growth. The study focused on a period of 20 years after major liberalization of

trade took place in Kenya.

Secondary data was used and it was derived from various relevant bodies such as the Kenya

National Bureau of Statistics. The data collected was analyzed using excel spreadsheets. Data

was also obtained from Kenya Revenue A~uthority.

The study revealed that there is a linear relationship between each of the independent variables

and the dependent variable. Further the study showed that the relationship is not only linear but

also positively linear. Multiple correlations of the independent variables that is government

expenditure, taxes and inflation and the dependent variable that is economic growth as measured

by GDP showed a positive relationship. The regression results showed that taxes and government

expenditure increase the level of GDP of Kenya. The results also showed that different levels of

inflation affect GDP in different ways. Some levels of inflation increase GDP whereas some

levels of inflation decrease GDP. The conclusion of the study is that there is a linear relationship

between taxes, inflation, government expenditure and economic growth. The main

recommendation is for the policy makers to ensure optimal combination of taxes, inflation, and

expenditure that achieves maximum economic growth.

TABLE OF CONTENTS

Declaration

Approval ii

Dedication

Acknowledgement iv

Abstract V

Table of contents vi

Abbreviations viii

List of tables

CHAPTER ONE: INTRODUCTION 1

1.1 Background of the Study 1

1 . 1.1 Government Expenditure, Taxes and Inflation 2

1.1.2 Economic growth 3

1.1.3 Relationship between government expenditure, taxes, inflation and economic growth 4

1.1.4 The Kenyan Economy 4

1.2 Problem Statement 5

1.3 Purpose of the study 6

1.4 Objectives of the Study 6

1.5 Research questions 6

1.6 Research hypothesis 6

1.7 Scope of the study 7

1.7.1 Subject scope! Content scope 7

1.7.2 Geographical scope 7

1.7.3 Time scope 7

1.8 Significance of the Study 8

CHAPTER TWO: LITERATURE REVIEW 9

2.1 Introduction to Literature Review 9

2.2 Theoretical Literature Review 9

2.2.1 Wagner’s approach of government expenditure and economic growth 9

2.2.2 Keynesian approach of government expenditure and economic growth 10

2.3 Empirical Literature Review 11

2.3.1 Taxes, public expenditures and economic growth 13

2.3.2 Inflation, public expenditures and (~onomic growth 14

2.4 Conclusion on Literature Review 15

CHAPTER THREE: RESEARCH AND METHODOLOGY 17

3.1 Introduction 17

3.2 Research Design 17

3.3 Data collection instrument 17

3.4 Source of data 17

3.5 Validity and reliability of data 17

vi

3.6 Population and Sample .18

3.7 Data Collection 18

3.8 Data Analysis 19

3.8.1 Regression analysis 19

3.9 Ethical consideration 20

CHAPTER FOUR: FINDINGS AND DISCUSSIONS 22

4.1 Introduction 22

4.2 Findings of the effects of taxes, inflation and public expenditure on economic growth...22

4.3 Regression analysis 23

4.3.1 Regression results of GDP and infl~tion 23

4.3.2 Regression results of GDP and Government revenue 24

4.3.3 Regression results of GDP and public expenditure 25

4.3.4 Multiple regression results 26

4.4 Summary of findings and discussions 27

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMEDATIONS 29

5.1 Introduction 29

5.2 Summary of findings 29

5.3 Conclusion of the study 30

5.4 Limitations of the study 30

5.5 Recommendations 31

5.5.1 Policy recommendations 31

5.5.2 Suggestions for further research 32

References 34

Appendix 1

Appendix 11 I

Appendix 111 III

Appendix IV IV

VI

ABBREVIATIONS

BVR-Biometric Voter Registration

GDP-Gross Domestic Product

GNP-Gross National Product

IEBC-Independent Electoral and Boundaries Commission

OECD-Organization for Economic Co-operation and Development

SRC-Salaries and Remuneration Commission