Budget deficits and macroeconomic performance in Kenya (1963- 2007): An empirical analysis.
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Date
2009-09
Authors
Kosimbei, George Kipng'etich
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Budget deficits have attracted a great deal of attention over the past two decades. They have been blamed for the assortment of ills that beset developing countries. The objectives of this study included: describing the budgeting process, explaining the sources of budget deficits, investigating the various methods used by the government of Kenya to finance budget deficits, analyzing the effects of budget deficits on selected macroeconomic variables and finally establishing the types of relationships that exists between budget deficits and selected macro variables. This study was underpinned on the Mundel- Fleming model. It applies Vector Auto regressions (VARs) together with annual time series data for the period 1963 to 2007 to evaluate the empirical effects of budget deficits on macroeconomic performance. The data used were selected macroeconomic variables that included; current account of the balance of payments, private consumption, private investment, money supply, Treasury bill rates, and real GDP. The study established that the budgeting process had loop holes which perpetrated budget deficits. Also, the sources of budget deficits include: level of economic development, low growth of revenue, instability of government revenues, government control over expenditures and the extent of government participation in the economy. The impulse response functions (IRFs) revealed that budget deficits have a significant effect on: private consumption, private investment, money supply (M3), treasury bills rate, current account and real GDP. These effects usually lasted for more than five years. Johansen co integration tests revealed a long run relationship between budget deficits and the selected macroeconomic variables. The overall ecommendation of this study is that the government of Kenya should formulate a firmer fiscal policy that would minimize budget deficits because they affect economic performance in Kenya.
Description
A thesis submitted to the School of Humanities and Social Sciences, in fulfillment of The requirements for the award of Doctor of Philosophy Degree in Economics of Kenyatta University.