Effects of Government Expenditure on Household Consumption in Kenya

The research project sought to investigate the effect of government spending on household consumption in Kenya. The study sought to find out the effects of components of governments spending on household consumption focusing on four components namely health, infrastructure, defence, public order and security in order to find out if spending on these areas encourages household consumption or stifles it. The study uses secondary annual time-series data over the period 1963 2012 to estimate a Vector Error Correction Model. The main source of data was the World Bank and the Government of Kenya official Statistical s. The study found out that all the four variables health, security, infrastructure and defence have positive impact on household consumption. The coefficients for infrastructure, public order and security and defence were found to be significant at 5 % level while that of health was significant at 10 % level. However the t-statistics for health and defence were found not to be significant. Therefore only infrastructure and security were significant. The study concludes that both infrastructure and security improves business environment in the long-run and thereby having a positive effect. The positive impact of health can be attributed to the increase of disposable income as a result of improved health status of the people i. e. will spend less on health expenses.