The Intervening Influence of Economic Growth on Fiscal Policy Stance and Public Expenditure in Kenya
DOI:
https://doi.org/10.61538/pajbm.v1i2.317Abstract
This paper investigates the intervening influence of economic growth on the relationship between fiscal policy stance and public expenditure in Kenya from 1964 to 2015 using a Vector Error Correction Model. The results indicate that economic growth has an intervening influence on the relationship between fiscal policy stance and public expenditure in Kenya. The findings further show that fiscal policy, economic growth and public expenditure are cointegrated using the Johansen test and the bound test but there is no short-run causality between the variables as indicated by the Wald test statistics. The findings suggest that economic growth explains the extent to which fiscal policy stance affects the level of public expenditure in Kenya even though fiscal policy stance has a negative relationship with public expenditure.References
Alesina, A., and Tabellini, G. (2005). Why is fiscal policy often pro-cyclical? National Bureau of Economic Research Working Paper Series,No. 11600.
Bagdigen, M., and Cetintas, H. (2003). Causality between public expenditure and economic growth: the Turkish case. MPRA Paper No. 8576.
Baron, R. M., and Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic and statistical considerations. Journal of Personality and Social Psychology, 51, 1173 – 1182.
Barro, R. (1991). Economic growth in a cross section of countries. Quarterly Journal of Economics, 106, 407– 444.
Barro, R., and Grilli, V. (1994). European macroeconomics. Basingstoke, Hampshire: Macmillan.
Brownbridge, M., and Canagarajah, S. (2008). Fiscal policy for growth and development in Tajikistan. World Bank Policy Research Working Paper No. 4532, World Bank.
Dao, M.Q. (2012). Government expenditure and growth in developing countries. Progress in Development Studies, 12(1), 77–82.
Deskins, J., Hill, B., and Ullrich, L. (2010). Education spending and state economic growth: Are all dollars created equal? Economic Development Quarterly, 24(1), 45–59.
Glomm, G., and Rioja, F. (2006). Fiscal policy and long-run growth in Brazil. Mimeo, Indiana University.
Greiner, A., Semmler, W., and Gong, G. (2005). The forces of economic growth - A time series perspective. Princeton: Princeton University Press.
Gurgul, H., and Lach, L. (2010). Causality analysis between public expenditure and economic growth of Polish economy. Statistics in Transition, 11(2), 329 – 359.
Heo, U. (2010). The relationship between defence spending and economic growth in the United States. Political Research Quarterly, 63(4), 760 –770.
Keynes J.M. (1936). The general theory of employment, interest and money. (vol. 7). Cambridge: MacMillan.
M’Amanja, D., and Morrissey, O. (2005). Fiscal policy and economic growth in Kenya. CREDIT Research Paper No. 05/06.
MacKinnon, D. P., Lockwood, C. M., Ho man, J. M., West, S. G., and Sheets, V. (2002). A comparison of methods to test mediation and other intervening variable e ects. Psychological Methods, 7, 83 – 104.
Njeru, J. (2003). The impact of foreign aid on public expenditure: the case of Kenya. AERC Research Paper No. 135, AERC.
Pailwar, V. (2008). Economic environment of business. New Delhi: Prentice-Hall of India, Private Limited.
Peacock, A., and Wiseman, J. (1961). The growth of public expenditure in the United Kingdom. Princeton: Princeton University Press.
Perotti, R. (2007). Fiscal policy in developing countries: a framework and some questions. World Bank Research Working Paper No. 4365, World Bank.
Pesaran, M.H., Shin, Y. and Smith, R.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics,16, 289 – 326.
Romer, P. (1990). Human capital and growth: theory and evidence. Carnegie-Rochester Conference Series on Public Policy, 40, 47–57.
Sakyi, D., and Adams, S. (2012). Democracy, government spending and economic growth: The case of Ghana, 1960–2008. Margin—The Journal of Applied Economic Research, 6(3), 361–383.
Semmler, W., Greiner, A., Diallo, B., Rezai, A., and Rajaram, A. (2007). Fiscal policy, public expenditure composition and growth. World Bank Policy Research Working Paper No. 4405, World Bank.
Solow, R. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics 70, 65 – 94.
Srinivasan, P. (2013). Causality between public expenditure and economic growth: The Indian case. International Journal of Economics and Management, 7(2), 335 – 347.
Tanzi, V., and Zee, H. (1996). Fiscal policy and long run growth. IMF Working Paper No. 96/119.
Temple, J. (2003). The long-run implications of growth theories. Journal of Economic Surveys, 17(3), 497–510.
Wagner, A. (1863). Grundlegung der politischen ökonomie. Retrieved on 09/11/2016 from http://www.google.com.
