The impact of expansionary fiscal policy on economic growth (1992-2015) case study: Rwanda

Abstract

In this research we used different methods to analyze the impact of expansionary fiscal policy on economic growth in Rwanda like empirical analysis. Findings have shown that there is a strong relationship between economic growth and tax and the government expenditure. The strong relationship between those variables is explained by the R square which is closer to1. the final results shows that the R Square is equal to 98%, economic growth is stationary at lag 2, 1st difference and function with intercept, It implies that the data are co-integrated in the long run, Government expenditure are stationary at lag 5, at second difference and function with None, It implies that the data are co-integrated in the long run, Taxes is stationary at lag 3, at the Second difference and function with none, It implies that the data are co-integrated in the long run, Residual is stationary at lag 0, at the first difference and function of level-trend and intercept, It implies that the data are co-integrated in the long run. In fact taxes haves a negative relationship with economic growth, and government expenditures have a positive relationship with economic growth. Subsequently, When tax rate increases by 1 percent, the economic growth reduces by 16.8 percent and when government expenditure increase by 1 percent the economic growth increase by 15.4 percent. In our research we recommended government policy makers to reduce tax rate for helping investors to invest more in the economy of the country and we recommend policy maker to develop efficient allocation of public expenditures in order to stimulate job creation and equitable redistribution of wealth among citizens.