Private Consumption and Government Expenditure in Kenya: Nonlinear Ardl Approach
Abstract
Several studies, both theoretical and empirical, have analyzed the question of whether government
expenditure increases or decreases private consumption but the results are inconclusive. The
contrasting result is mainly attributed to the use of different methodologies, model specification as
well as the diverse economic structures and different government spending patterns in the
respective countries. To arrive at appropriate fiscal policy implications, a country-specific study
with a sound empirical investigation is necessary. This study adopts the ARDL approach to
examine cointegration between private spending and public spending in Kenya for the period
1971-2018 while incorporating disposable income in the model. Furthermore, the study aims to
determine asymmetry between the variables by employing the NARDL approach. Results show
nonlinearity between private consumption and government expenditure. Also, both models
revealed that government expenditure significantly substitutes private consumption whereas
household income significantly increases private consumption. The study concludes that
government expenditure suppresses private consumption because it is financed by taxes and
borrowing which come at the expense of private individuals.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Economics [237]
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