Asymmetric effects of fiscal policy on economic growth in Uganda: A nonlinear ardl approach

Abstract

This study examined the asymmetric effect of fiscal policy on economic growth in Uganda using the annual time series data collected from the Uganda Revenue Authority and World Development Indicators of the World Bank from 1983 to 2020. The study carried out the Augmented Dickey Fuller (ADF) and Phillips Perron (PP) tests to determine the stationarity components of variables and used the NARDL bounds test approach to run cointegration to establish the level relationship, short run and long run relationship asymmetric effect of fiscal policy on economic growth. The ADF and the Phillips Perron (PP) unit root tests revealed that the variables are comprised of a mixture of order zero and order one variables which confirmed the use of the NARDL bounds test approach to cointegration. The bounds test results revealed the presence of a cointegrating relationship among the variables while the NARDL model showed the existence of an asymmetric long-run relationship between economic growth and fiscal policy variables of government expenditure and tax revenue. At the same time, the findings indicate an asymmetric short-run effect of tax revenue on economic growth. Following the empirical results, this study recommends policies that are anchored towards channeling government resources into supporting individual businesses by providing an enabling atmosphere that encourages investments both public and private which is viewed as one way of enhancing economic growth. Similarly, the study argues the government to invest heavily in the productive sectors of the economy if the long-run economic growth is to be realized and reach middle-income status as early as possible.