Effects of government expenditure, taxes and inflation on economic growth in Kenya: a disaggregated time series analysis

Abstract

The purpose of this study was to establish the effect 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 Authority. 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