The Relationship between fiscal policy and elections in the East African Community

Wachira, Muthoni
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Strathmore University
Incumbent leaders may manipulate fiscal policy in terms of increasing recurrent or capital expenditure to convince voters of their competence in running the government. Financing of the increased expenditure is what leads to fiscal balances since the expenditure exceeds the revenue a country generates. This study aims to find out whether fiscal policy is affected by election years for the East African Community member countries which include Kenya, Uganda, Tanzania, Rwanda and Burundi. The main variables of interest are pre-election, election, post-election years and the fiscal balance to capture the fiscal policy manipulation. Control variables are also included such as inflation, the logarithm of the exchange rate and the growth rate in real GDP. Arellano and Bond Generalized Method of Moments estimator was applied to the dynamic panel data model for the time span 1990-2015. The study concludes that the fiscal balance is not affected by the incumbent leaders. This is so because the fiscal balance was insignificant during the election years for the EAC member countries. However, there is a significant relationship between fiscal balance and the growth rate in real GDP indicating that the fiscal balance in East African member countries is affected more by economic variables as compared to opportunistic incumbents. Despite the fact that fiscal balance is not affected by elections, there is still need for strong institutions which translate to better governance, better allocation of public goods, which leads to sustained growth that will lead to a reduction in the fiscal balance
A Research project Submitted in partial fulfillment of the requirements for the degree of Bachelor of Business Science in Financial Economics at Strathmore University
East Africa Community, capital expenditure, elections