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The determinants of fiscal deficits: a survey of literature

Persistent deficits are fast leading to an accumulation of government debt across the world.  In our latest paper, we surveyed the existing literature, both theoretical and empirical, on the determinants of fiscal deficits. The theoretical literature highlights the role of the Ricardian equivalence theory, the Keynesian theory, the neoclassical theory, and political budget cycle hypothesis in shaping the current discourse on budget deficits and their effects on other variables. A review of the empirical studies reveals that: economic growth, debt, unemployment rates, trade openness, level of development (GDP per capita), level of urbanization, extreme weather events, current account balances, inflation, aid, military spending, as well as political factors, and quality of budgetary institutions are important determinants of budget deficits. While research on the linkage between the structure of the economy and persistence of the budget deficit is limited, evidence shows that tax base
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How should Uganda finance infrastructure development?

Although Uganda has made progress in infrastructure development, the country still faces huge deficits across all sectors, including in transport, energy, water and information and communication technology that require financing beyond the public budget ceilings. These deficits affect the business climate and increase the cost of doing business with implications for enterprise growth and job creation. In addition, infrastructural deficits exacerbate poverty and inequality and could therefore hinder the attainment of the sustainable development goals (SDGs). Already, Government plans to spend about UGX 8.5 trillion or approximately 37.5 percent of the entire 2017/2018 budget on the works & transport (24.3 %) and energy & mineral development (13.2 %) sectors. These planned expenditures are huge and will necessitate the consideration of alternative and innovative financing vehicles to avoid crowding out other developments in the economy, such as service delivery in agriculture,
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Bailout? The economic genesis of the problem and some solutions

The media has been awash with the bailout buzz over the last couple of weeks. Most commentaries expressed displeasure at the idea that some distressed private businesses would need to be bailed out using public funds. In this article, I look beyond the individuals who have taken centre stage in the heated debate and instead discuss the macroeconomic genesis of the problem and offer some solutions. First I argue that the distress in the private sector points to a much larger problem with a struggling economy, misdirected investments and a weak indigenous private sector. The genesis of the problem dates back to the years following the global financial crisis. Initially, the Ugandan economy appeared to have been spared the gruelling after effects of the crisis. Economic growth averaged 8% between 2007 and 2009 a period in which the crisis unravelled. That Uganda enjoyed limited integration with the world financial markets helped. The ensuing loss in foreign direct investment, rem
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Can Uganda raise more tax revenue?

Taxes are the life blood without which governments are unable to sustain government expenditures for service delivery. The overall tax morale in a given country is driven by the citizenry’s expectations about the state of service delivery. Taxes, therefore, represent an important contract between the government and the citizens by giving citizens a stronger stake in what their government does and a stronger incentive to demand accountability. Uganda’s tax system is comparable to global benchmarks. Income and corporate tax rates in Uganda are 30 percent; value added tax rate is 18 percent; and import duty rate is 25 percent of the import value. The major tax handles are: 1) direct domestic taxes – including pay as you earn; corporation tax, withholding tax, tax on bank interest, casino tax, and other incomes taxes 2) indirect domestic taxes including excise duty, value added tax 3) taxes on international trade 4) and Fees and licenses. One major challenge facing policy makers in Ug
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How much do social networks help agrarian households?

There is growing evidence showing that social networks can bridge barriers in access to information and exchange of production factors, and provision of the often lacking public capital and insurance. In Uganda, like in many other developing countries, the state lacks adequate capacity to fully facilitate household access to markets for their farm produce. This is due to a combination of limited budgets and poor governance. In such circumstances, the people rely on their collective effort to overcome market failures and to take advantage of market opportunities. Therefore, social network capital and group activities play a huge role in shaping socioeconomic outcomes. Past studies have identified two broad concepts of social network capital. The first concept presents social network capital as vested in norms, trust and mutual affection and care for others that permits cooperation, facilitates collective action and therefore leads to the provision of some sort of public goods The sec
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Counterfeits and substandard products are putting businesses, lives and livelihoods on the line

The 2015 report by the Global Entrepreneurship Monitor has ranked Uganda as the most entrepreneurial country in the world.   More than a quarter of the Ugandan population (28 percent) have started out a business of their own in the last 3.5 years. The surge in entrepreneurship activity among Ugandans has been supported by improved reliability of electricity supply, investments in roads, regional integration efforts, and the ICT and mobile phone revolution that have made connectivity and payments easier even in hitherto hard to reach remote areas. However, whilst an ever increasing number Ugandans are turning to entrepreneurship as a way to advance their economic prospects, the odds still remain heavily stacked against them. Many businesses have to deal with, among others, unfair competition from substandard and counterfeit alternatives.   Counterfeiting and the proliferation of cheap substandard products on the market is a major constraint to business growth and competitiven
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