The Nexus between Government Expenditure and Taxation Controlled by Government Revenue Composition in Kenya

 Fiscal policy is crucial to achieving macroeconomic balance in a county. For example, in Kenya, the increase in the amount of public expenditure and the country’s fiscal deficits in relation to the country’s Gross Domestic Product has resulted in macroeconomic imbalance and the risk associated with this imbalance (GDP). However, despite the fact that the country’s transition has greatly improved its fiscal and tax institutions in recent years, building a legal and institutional underpinning for prudent fiscal policies, such an imbalance exists and is growing. Putting in place fiscal policies that have an impact on government spending and taxation, as well as other variables that have an impact on country activities at the macro level, is critical for affecting a country’s economic growth and development. The goal of this research was to determine the relationship between government spending and taxes, as well as the control effect of government revenue composition on the relationship between spending and taxation. From 2002 to 2017, the study used a longitudinal research approach to collect secondary data across a sixteen-year period. Data was examined using descriptive and inferential statistics, with Pearson correlation used to test for association and regression analysis used to test for effects between variables. According to the study, government spending does not have a major impact on taxation. Government expenditure and government revenue composition, on the other hand, were found to have a considerable effect on taxation in Kenya when regulated by government revenue composition. To have a substantial impact on the country’s taxation position, the government should execute policies that increase tax revenue compared to overall government revenue, in addition to spending more to increase economic activity that generate tax money for the government.

Author(s) Details:

Angela Mucece Kithinji,
University of Nairobi, School of Business, Kenya.

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