Effects of government expenditures on inflation in Rwanda (2006Q1-2019Q4).

A good government spending plan is essential and critical for an economy. A good understanding of it, is essential to have an efficient and evidence based planification which is fundamental to prevent that  government expenditures lead not to deficits or even inflation due to different issues associated to it as described further in the study. 

To understand the effect of government expenditures on inflation in Rwanda we have used the autoregressive distributed lag (ADRL) model to investigate the relationship between them. In that framework we found the evidence that the two are related and that the increase in government spending in Rwanda lead to a decrease in inflation both in the short and the long-run.

However, referring to the theoretical and empirical literatures used in this study, it is seen that in different cases the government expenditures have an opposite effect on inflation as to the case of Rwanda. 

Thus efforts should be made by policy makers to diversify the ways through which they finance the government expenditures, so that they do not rely on the traditional ways to finance the government spending including taxation and external borrowing. 

Keywords: government expenditures (spending), inflation, Rwanda

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