Global Journal of Economic and Finance Research

Macroeconomic drivers of fiscal deficit dynamics in Uganda remain underexplored despite persistent budget shortfalls and rising public debt yet fiscal deficits determine house hold welfare and availability of credit. The problem that necessitated this study is that no existing research has simultaneously estimated the short‑run and long‑run effects of household consumption, national saving, investment, capital accumulation, and population growth on Uganda’s fiscal deficit creating a lot of uncertainty since excessive and poorly managed deficits directly reduce living standards through inflation and high interest rates though planned deficits can stimulate growth. Therefore, this study assesses these five effects using Keynesian and Ricardian equivalence theories. Annual time‑series data from financial years 1995–1996 to 2024–2025 were analysed using the ARDL bounds testing approach. Results show that in the long run, national saving (−0.432, p=0.028) and population growth (−0.672, p=0.007) narrow the deficit, while investment (0.587, p=0.011) and capital accumulation (0.089, p=0.045) widen it; household consumption also reduces the deficit (−1.892, p=0.002). In the short run, only consumption (−0.876, p=0.049) is significant. The error correction term (−0.514, p<0.05) confirms rapid adjustment. The study concludes that Uganda’s fiscal deficit is driven by distinct temporal dynamics, with consumption playing a dual role while saving, investment, capital, and population affect only the long run. Recommendations include strengthening consumption tax administration, promoting domestic saving, and using public‑private partnerships for investment. The implication is that fiscal policies must differentiate between short‑run automatic stabilizers and long‑run structural drivers.

Macroeconomic

1. African Development Bank. (2025). Country Policy and Institutional Assessment (CPIA) report: Uganda. 
2. Alesina, A., & Perotti, R. (1995). Fiscal expansions and adjustments in OECD countries. Economic Policy, 10(21), 205–248.
3. Baltagi, B. H. (2021). Econometric analysis of panel data (6th ed.). 
4. Bank of Uganda. (various years, 2016–2023). Quarterly economic reports. Kampala: Bank of Uganda.
5. Barro, R. J. (1974). Are government bonds net wealth? Journal of Political Economy, 82(6), 1095–1117.
6. Bénétrix, A. S., & Lane, P. R. (2013). Fiscal deficits and household consumption: A cross-country analysis. Journal of International Money and Finance, 34, 1–18.
7. Bernheim, B. D. (1987). Ricardian equivalence: An evaluation of theory and evidence. NBER Macroeconomics Annual, 2, 263–304.
8. Bloom, D. E., Canning, D., & Sevilla, J. (2003). The demographic dividend: A new perspective on the economic consequences of population change. 
9. Brooks, C. (2019). Introductory econometrics for finance (4th ed.). 
10. Brown, R. L., Durbin, J., & Evans, J. M. (1975). Techniques for testing the constancy of regression relationships over time. Journal of the Royal Statistical Society: Series B, 37(2), 149–163.
11. Burnside, C., & Dollar, D. (2000). Aid, policies, and growth. American Economic Review, 90(4), 847–868.
12. Easterly, W., & Rebelo, S. (1993). Fiscal policy and economic growth: An empirical investigation. Journal of Monetary Economics, 32(3), 417–458.
13. Eisner, R. (1989). Budget deficits: Rhetoric and reality. Journal of Economic Perspectives, 3(2), 73–93.
14. Feldstein, M. (1982). Government deficits and aggregate demand. Journal of Monetary Economics, 9(1), 1–20.
15. Friedman, M. (1957). A theory of the consumption function. 
16. Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). 
17. International Monetary Fund. (2021). Regional Economic Outlook: Sub-Saharan Africa. 
18. International Monetary Fund. (2023). World Economic Outlook: A rocky recovery. Washington, DC: IMF.
19. International Monetary Fund. (2024). Uganda: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Uganda. IMF Country Report No. 24.
20. International Monetary Fund. (2025). Regional Economic Outlook: Sub-Saharan Africa – A difficult path to recovery. Washington, DC: IMF.
21. Insight Post Uganda. (2025). Uganda’s fiscal deficit widens to 7.6% of GDP. Insight Post Uganda. Retrieved from [URL if available].
22. Jirah, E. (2024). Effect of fiscal deficits on long‑term interest rates in Uganda. Journal of African Finance and Economics, 12(2), 45–62.
23. Kapingura, F. M., & Makhetha‑Kosi, P. (2019). Fiscal deficits and macroeconomic performance in the Southern African Development Community. African Development Review, 31(4), 456–468.
24. Katusiime, L., & Agasha, E. (2018). Fiscal deficits and public debt in Uganda. Journal of Economics and Sustainable Development, 9(5), 1–12.
25. Keynes, J. M. (1936). The general theory of employment, interest and money. Macmillan.
26. Lee, Y., & Gordon, R. H. (2005). Tax structure and economic growth. Journal of Public Economics, 89(5–6), 1027–1043.
27. Lerner, A. P. (1943). Functional finance and the federal debt. Social Research, 10(1), 38–51.
28. Macroeconomic determinants of fiscal deficits in East Africa. (2024). East African Economic Review, 39(1), 21–40.
29. Mankiw, N. G. (2000). The savers–spenders theory of fiscal policy. American Economic Review, 90(2), 120–125.
30. Mohamed Ali, A. (2025). Fiscal deficits, monetary expansion, and inflation in Uganda. Journal of African Macroeconomic Policy, 8(1), 33–51.
31. Mugume, A. (2025). Net national savings in Uganda: Trends and determinants. Bank of Uganda Working Paper Series, No. 02/2025.
32. Mwosi, F., Okello, G., & Ssekakubo, J. (2020). Fiscal deficits and exchange rate volatility in Uganda. International Journal of Finance and Banking Research, 6(3), 54–66.
33. Narayan, P. K. (2005). The saving and investment nexus for China: Evidence from cointegration tests. Applied Economics, 37(17), 1979–1990.
34. Nyamongo, E. M., Were, M., & Okeri, S. (2012). Fiscal deficits and economic growth in Kenya. Journal of Economics and International Finance, 4(8), 187–196.
35. Odhiambo, N. M. (2015). Fiscal deficits and economic growth in Kenya: An empirical investigation. Journal of Developing Areas, 49(2), 301–315.
36. Odhiambo, N. M., & Ochieng, J. (2021). Fiscal deficits and monetary policy in Uganda. Journal of African Business, 22(3), 345–360.
37. Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed‑lag modelling approach to cointegration analysis. In S. Strøm (Ed.), Econometrics and economic theory in the 20th century: The Ragnar Frisch Centennial Symposium (pp. 371–413). 
38. Sayid Omar, A. (2022). Fiscal deficits and inflation in Uganda: An ARDL approach. Uganda Journal of Economics, 7(2), 88–104.
39. Tabachnick, B. G., & Fidell, L. S. (2019). Using multivariate statistics (7th ed.). 
40. Tobin, J. (1972). Keynesian economics and the current crisis. Challenge, 15(5), 6–11.
41. Twinoburyo, E., & Odhiambo, N. M. (2019). The twin deficit hypothesis in Uganda: An empirical investigation. Journal of Economic Cooperation and Development, 40(3), 127–150.
42. Wang, H., Li, Y., & Zhang, X. (2024). Simple linear regression applications in financial access studies. Journal of Applied Statistics, 51(2), 215–230.
43. World Bank. (2025). Uganda economic update: Growing sustainably with a rising population.