The Effect of Government Sectoral Expenditure on Poverty Reduction in Kenya

Abstract

The study aimed to examine the correlation between public sectoral spending and its effect on poverty reduction in the Kenyan set up. Poverty remains to be a global phenomenon and no country is insusceptible to the menace it is likely to cause if no proper fiscal policies are put in place to address it. Economic theory opines that increased government spending leads to reduced levels of poverty in the society. However, different studies on this topic have yielded conflicting empirical results. That formed the basis of this study for further interrogation as to whether an observable nexus exists between public expenditure on the agriculture and education sectors and poverty reduction. Private consumption per capita was used as a proxy to measure poverty. Two control variables, namely; real GDP and inflation were used in the study to give fair and unbiased results. The research was anchored on the Cobb-Douglas Production model. The study employed quarterly time series data between 1990 to 2022. The data was mined mainly from KNBS, the National Treasury, CBK, KIPPRA and the World Bank. The study adopted the VECM model for establishing the long-run relationships between the variables of interest. Unit root tests were conducted using both ADF and PP techniques to transform data into stationary time series for robustness. In addition, the study conducted autocorrelation analysis using LM to confirm the validity and reliability of the study results. The null hypothesis with no autocorrelation was rejected in the study. The findings indicated that Government expenditure on agriculture was significant in lowering poverty (β1=0.4833; p=0.0000) while expenditure on education, was not (β2 = -0.0884; p=0.0000). Thus, the need for enhanced allocation of resources and government expenditure to agriculture and education to alleviate the poverty scourge. The findings will benefit policy makers, fiscal analysts, and advocacy groups.