A comparative analysis of government revenue and expenditures in Uganda (2007-2018)
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In the field of public finance, the issue of potential links between government revenue and government expenditure has intensively attracted the attention of policy makers. On the one hand, the needs for government investments are constantly increasing especially in developing countries like Uganda, while, on the other hand, the access to high government revenues especially through tax collection is present a constant difficulty due to low income per capita in these countries (Lojanica, 2015). Uganda’s domestic revenues have been insufficient to fund its public services; as a result, it has relied on concessional external borrowing and donor grants to supplement its domestic revenue earnings. Uganda’s fiscal deficit has increased as a percentage of GDP because of the increase in government expenditure, financed by donor aid inflows (Wokadala, 2006). The main objective of the study was to investigate the relationship between government revenue and government expenditure in Uganda. The study employed monthly secondary data covering the period from July 2007 to January 2018 and the data was got from the Uganda Bureau of Statistics (UBOS) in conjunction with the Ministry of Finance Planning and Economic Development (MoFPED). The study estimated the Vector Auto Regressive Model (VARM) and the executed the Granger Causality test to stablish the relations between government revenue and government expenditure. It was discovered that there were significant causal relations between government revenue and expenditure on different sectors in the economy. All in all, there was a statistically significant relationship between government revenue and government expenditure. Government revenue and government expenditure as well follow the fiscal synchronisation hypothesis by (Meltzer, 1981) and (Musgrave, 1996). This suggest that there is a feedback loop between the two variables. The feedback loop between the variables implies that they are interdependent and an appropriate implication is to make decisions on government revenues and expenditures simultaneously. Therefore, improvements on both revenue and expenditure sides are required in order to solve the problem of budget deficit.