Public Spending Composition in Uganda and its Implications for Growth and Poverty Reduction

Abstract

This article examines the interrelationships between public spending composition and Uganda’s development goals including economic growth and poverty reduction. The authors utilize a dynamic computable general equilibrium model to study these interrelationships. These results demonstrate that public spending composition does indeed influence economic growth and poverty reduction. In particular, the authors show that improved public sector efficiency coupled with reallocation of public expenditure away from the unproductive sectors such as public administration and security to the productive sectors including agriculture, energy, water, and health leads to higher gross domestic product growth rates and accelerates poverty reduction. Moreover, the rate of poverty reduction is faster in rural households relative to the urban households. A major contribution of this article is that investments in agriculture, particularly with a view to promoting value addition and investing in complementary infrastructure (e.g., roads and affordable energy), contribute to higher economic growth rates and also accelerate the rate of poverty reduction.