Determinants of Government Expenditure and its Relation with National Income in Nepal

Abstract

This thesis empirically examines the determinants of government expenditure growth and its causal relationship with national income in Nepal. The study employs a Least Square Multiple Regression Model to analysis the determinants of government expenditure growth in Nepal. Subsequently pair wise Granger Causality test has been used to test the causality between government expenditure growth and GDP growth in Nepal, and finally government expenditure elasticity with respect to GDP in Nepal. The analysis has been done by using time-series secondary data from FY 1974/75 to 2016/17. The research study used chooses the explanatory variables by considering three broad areas. They are economic, demographic and political. Under economic areas the four variables have been used. They are real GDP, real tax receipt, inflation and real foreign assistance. And population growth and political instability have been used as a demographic and political variables respectively. The result of multiple regression shows that real foreign assistance growth and inflation has significantly impact or determine the total government expenditure growth in Nepal. All remaining variables do not have any significance impact on government expenditure in Nepal. Again, the result of causality test shows that there has unilateral causality between government expenditure growth and GDP growth. It means that the government expenditure growth does causes GDP growth but GDP growth does not cause government expenditure growth in Nepal. Finally, the result of government expenditure elasticity with respect to GDP in Nepal is less then unitary. It indicates that the GDP is less responsive to change in government expenditure in Nepal.