Determinants of government expenditure in Uganda

Abstract

The study investigated the determinants of government expenditure focusing on Uganda from 1982 to 2022. This period was selected due to the desire to include the recovery program of 1982-1984 which aimed to channel financial resources into selected sectors likely to produce quick returns with a minimum of resources. The data employed in this study was downloaded from the World Bank website, particularly, the World Development Indicators file. The Autoregressive Distributed Lag (ARDL) model was utilized to establish the short-run and long-run relationship of factors such as trade openness, total population, GDP, and GDP per capita on government expenditure. Specifically, this study aims to examine the effect of trade openness on government expenditure in Uganda, assess the impact of the total population on government expenditure, and investigate the influence of GDP per capita on government expenditure in Uganda. Results from the ADF unit root tests indicated that the variables considered were integrated of order I(O) and I(I). Also, the study tested positive for cointegration among the explanatory variables. Findings from the ARDL model indicated that GDP per capita is a significant positive determinant of government expenditure. Moreover, previous levels of government expenditure, total population, and trade openness were found to significantly influence government expenditure, with rapid adjustments of about -1.46 evident from past expenditure values. Consequently, to stabilize or reduce government expenditure effectively, it is recommended that the government implement policies aimed at stabilizing these key economic indicators. Specifically, policies should stimulate economic growth to increase GDP per capita, respond swiftly to trade openness and design fiscal strategies that adjust rapidly to past expenditure-level fluctuations.