Government Debt, Interest Rates, Fiscal Policy and Economic Growth in East African Countries

Abstract

The research particularly endeavored to explore the effect of state borrowing on wealth development. Investigate the interest rate intervening effect on the interrelationship amid government indebtedness and financial development. Investigate the tax procedure moderating impact among state borrowing and financial expansion. Determine the combined effect of state borrowing, rates of interest and tax policy on expansion of the economy. This study was accomplished for Uganda, Kenya, and Tanzania being the three countries forming East Africa over the study period 1980-2019. A step wise multi regression approach was employed for data analysis. The outcome unveiled that in Kenya the government debt had an adverse (-1.767745) but not significant statistically impact at (P=0.393) on economic growth. Tanzania’s outcomes indicate that government indebtedness had an absolute (0.3330114) but statistically not significant impact at (P=0.516) on expansion of the economy. The outcome on Uganda indicate that government indebtedness had an unfavorable (-1.312675) but statistically not significant at (P=0.2890) on financial advancement. The impact of the rate of interest on the interrelationship amid government indebtedness and financial progress signify a positive effect of (0.570319) that is not significant statistically at (P= 0.463) for Kenya, a positive effect of (0.0123108) that is statistically not significant at (P=0.955) for Tanzania, a positive effect of (1.736403) that is statistically significant at (P=0.010) for Uganda. The effect of tax strategy on the interrelationship amid government indebtedness and financial progress signify an adverse effect of (-0.3058407) that is not significant statistically at (P= 0.734) for Kenya, an adverse effect of (-0.1659715) that is statistically not significant at (P= 0.444) for Tanzania, a positive effect of (3.051008) that is statistically significant at (P=0.038) for Uganda. The combined impact of state borrowing, interest rate and tax policy on financial advancement indicate statistical significance impact of (F=0.0303) for Kenya, a statistical not significant effect of (F=0.4688) for Tanzania and a statistical not significant effect of (F=0.0943) for Uganda. To achieve a positive economic growth and in consideration these results, it is suggested that Kenya, Tanzania, and Uganda must outline and put into action the rates of interest, budget deficit and debt policies to align and fit with different policies on macroeconomics. In the second place, they must contain their expenses to tenable positions to conserve an equitable if not excess budget. Next, they must lay out and devise policies to widen the taxable base to sustain a balanced budget. Lastly, the states must prevent crowding out by using enormous debt in the internal trade at the cost of the business sector. These findings agree with documented empirical literature. The analysis has added to the area of study findings from a developing country contextual perspective given that existing empirical literature evidence is dominated by developed countries. This Research findings will contribute to the policy and practice in governmental economic affairs mostly concerning state debt, rates of interest, tax policy, and the growth of the economy.