Budget Deficits and Macroeconomic Performance in Kenya (1963- 2007): An Empirical Analysis

Kosimbei, George Kipng'etich (2009) Budget Deficits and Macroeconomic Performance in Kenya (1963- 2007): An Empirical Analysis. PhD thesis, Kenyatta University.

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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 Autoregressions (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 revenu~, instability of government revenues, government control over expenditures al;.d 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 cointegration tests revealed a long run relationship between budget deficits and the selected macroeconomic variables. The overall recommendation 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.

Item Type:	Thesis (PhD)
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HB Economic Theory
Divisions:	Africana
Depositing User:	Geoffrey Obatsa
Date Deposited:	07 Apr 2017 11:02
Last Modified:	07 Apr 2017 11:02
URI:	http://thesisbank.jhia.ac.ke/id/eprint/1436

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