Effect of Tax Revenue Growth on Economic Growth in Kenya

Abstract

The current paper sought to investigate effect of total tax revenue growth on economic growth in Kenya. Specifically, the research sought to evaluate the effect of total tax revenue growth on economic growth in Kenya while controlling for covariate and to offer policy solutions. Analysis was done using VECM and the findings are that tax revenue growth, interest rate, inflation, net FDI to GDP ratio and net exports to GDP ratio have a favorable effect on economic growth. The study utilized a 33-year time series data from 1990 to 2022 sourced form the World Development Indicator. We recommend that tax revenue growth rate should take into account the projected economic growth. Taking such consideration can help boost economic growth and achieve set growth. Secondly, the inflation rate should be set at a favourable level that will boost investment and hence enhance economic growth. We recommend moderate rather than higher interest rate. Finally, there should be policy intervention and mechanism that should be put in place in order to lower the negative net exports to reduce more leakages in the economy to boost economic growth.