Determinants of public expenditure growth in Kenya

Abstract

The study examines the determinants of public expenditure growth in Kenya. Time series data analysis technique is used for the period 1980 - 2004.The main objectives of the study are to analyze government budgetary resource composition and; examine the impact of the government budgetary resources on public expenditure growth. This study is important since public expenditure is on the rise yet the GDP is marginally increasing to sustain the public expenditure growth. The determinants of public expenditure growth model are estimated by the OLS method. Study results show that public expenditure growth is explained by internal debt. The findings indicate that 10 Kenya pound increase in internal debt results in an increase in public expenditure by 1.63 Kenya pounds. With respect to external debt financing, the results show that 10 Kenya pounds increase in external debt leads to a decrease in public expenditure by 1.17 Kenya pounds, thus an indication of debt overhang hypothesis in Kenya. A strong positive relationship between government revenue and public expenditure was revealed. A 10 Kenya pound increase in government revenue results into 580 Kenya pound increase in government expenditure. From the findings, it is important that the government avoids over reliance on internal borrowing for financing public expenditure as this has detrimental effect on economic growth due to crowding out of the private sector