Effect Of Fiscal Policy on Income Inequality in Uganda.
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Date
2026-02-04
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Makerere University Business School
Abstract
This study investigates the effect of fiscal policy on income inequality in Uganda, framed within the Kuznets hypothesis, which posits a non-linear relationship between economic growth and inequality. The specific objectives were to examine the effects of indirect taxes, government expenditure, public debt, and fiscal deficits on income distribution. Using a longitudinal research design and time series analysis, the study estimates both short-run and long-run dynamics between fiscal policy instruments and income inequality, measured by the Gini coefficient. The results reveal that indirect taxes, largely consumption-based, have no significant redistributive impact in either the short or long run, underscoring the limitations of Uganda’s tax system in addressing inequality. Government expenditure initially reduces inequality in the short term, but in the long run, it is associated with rising disparities due to inefficiencies, poor targeting, and leakages. Public debt shows a pro-poor effect in the short run, particularly through crisis-related spending, but over time it exacerbates inequality as debt servicing crowds out social expenditure. Similarly, fiscal deficits reduce inequality in the short run by enabling expansionary spending, but long-run consolidation efforts increase inequality by cutting essential services and raising consumption taxes. The findings suggest that Uganda’s fiscal policy, while offering short-term relief, often fails to deliver sustained equity gains. The study recommends adopting progressive tax reforms, improving the efficiency and targeting of public expenditure, managing debt sustainably with a focus on inclusive development, and designing equity-sensitive fiscal consolidation strategies.
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This is a master's thesis.
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Namubiru, R. (2026). Effect Of Fiscal Policy on Income Inequality in Uganda. (Unpublished master's dissertation). Makerere University Business School, Kampala, Uganda.