Articles: Department of Economics

Permanent URI for this collectionhttp://repository.embuni.ac.ke/handle/embuni/3868

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Implications of Tax Reforms on Tax Potential in Kenya: An Econometric Analysis
(University of Embu, 2025) Karug , Irene Wanjiku; Mwito, Moses Mutharime; Mugambi, Paul Joshua
Taxation serves as a crucial financial foundation for economic and social development, yet inefficient systems can impede compliance and efficiency. Kenya have implemented various tax reforms to increase revenue for public finance. However, despite the numerous tax reforms implemented, Kenya has continued to experience increasing budget deficit. This research therefore aims to examine the impact of tax reforms on tax potential in Kenya. The research examines the influence indirect tax reforms, direct tax reforms, and tax rate reforms has on tax potential in Kenya. The study utilized autoregressive distributed lag (ARDL) modeling to examine the short term and long-term effects of tax reforms on tax potential in Kenya using annual secondary data spanning 52 years (1970–2022). The findings indicated that Kenya’s tax structure is not elastic or buoyant. A positive connection was established between indirect tax reforms and tax potential in the long term. A positive relationship between direct tax reforms and tax potential was also established in the long run. Further, tax rate reforms was found to be insignificant in influencing tax potential in Kenya. The study also incorporated manufacturing as a share of gross domestic product and inflation as control variables. The results indicated a strong and positive correlation between manufacturing input and the potential for taxation over the long term. The findings offer valuable insights for policymakers in Kenya seeking to enhance tax revenue mobilization strategies. The positive relationship between indirect tax reforms and direct tax reforms, tax system being neither buoyant nor elastic emphasized the importance of creating and executing additional reforms, with particular emphasis on investing in those that enhance the tax system’s resilience and connect it more directly to economic growth.
Asymmetric effects of fiscal policy on inflation in Kenya.
(University of Embu, 2024-10) Jemutai, Judy; Mwito, Moses Mutharime; Joshua, Paul Mugambi
This study investigates the asymmetric effects of fiscal policy on inflation (INF) in Kenyausing data for the period from 1991 to 2021. The study differs from previous studies byapplying the non-linear autoregressive distributed lag (NARDL) modeling to captureasymmetric dynamics. The study identified a long-run equilibrium and cointegratingrelationship among the study variables, with the findings indicating the existence ofasymmetric long-run effects of public debt (PD) and government spending (GS) on INF.A positive relationship between increases in PD and INF in the short-run is also estab-lished, while decreases in PD are found to increase INF in both the long-run and short-run. Increases in GS raise INF, while decreases in tax revenue (TR) reduce INF in thelong-run. Output gap has a persistent positive relationship with INF, while interest ratenegatively affects INF. As such, the study recommends that policymakers should priori-tize fiscal measures, especially government expenditure by ensuring that any additionalspending does not cause inflationary pressures. The government should also regulatePD by ensuring that its levels align with the objective of INF control.
Influence of selected Institutional Factors on Adoption Intensity of Circular Economy Practices among Sugarcane and Rice Processors in Western Kenya
(University of Embu, 2025-09-17) Kamau Ezekiel Areri; Mwito Moses Mutharime; Paul Mugambi Joshua; Mogaka Hezron Rasugu; Kirimi Florence Kaumi; Onyari Charles Nyambane; Lydia Muriithi; Otara Nyaboe Elvin; Shadrack Kiprotich; Njiru Moses Muchangi; Mutungi Scholastica Kavata; Kyalo Annastacia
The transition to circular economy (CE) is very critical for sustainable development in industrial sector however, its adoption remains limited particularly in developing countries. This study examines the selected institutional factors influencing adoption intensity of circular economy (CE) practices among sugarcane and rice processors in Kisumu, Siaya, and Busia counties in Western Kenya. Given the rising waste crisis in Kenya coupled with- Western Kenya’s growing need for sustainable industrial practices, this study assesses the key institutional drivers of adoption intensity of circular economy practices, among them, technical training, regulatory support, extension services, policy awareness, NGO support, and access to grants. A census survey of 19 processors of sugarcane and rice was conducted using structured questionnaire and semi-structured interviews. Utilizing a mixed-methods approach, this study combines qualitative insights with quantitative analysis through an ordered logistic regression model. Descriptive statistics indicate a low level of access to technical training (M = 2.368, SD = 0.955), insufficient regulatory support (M = 1.842, SD = 1.425), and a lack of awareness regarding CE-related policies (M = 1.632, SD = 1.674). The regression analysis shows that technical training (β = 2.852, p = 0.032), regulatory support (β = 1.115, p = 0.09), and availability of grants (β = 1.532, p = 0.072) significantly affect the intensity of adoption. Conversely, support from NGOs and awareness of policies have less pronounced correlations with adoption. These results highlight the necessity of structured institutional support, financial incentives, and regulatory frameworks in promoting CE adoption. Additionally, the study recommends for minimization of waste and increased resource efficiency in Western Kenya’s sugarcane and rice processing sector.
Effectiveness of Fiscal Policy in Stimulating GDP Growth
(University of Embu, 2023-08-10) Kinyua, Dancan Muriuki; Ocharo, Kennedy Nyabuto; Ochenge, Rogers Ondiba
This study examines the effectiveness of fiscal policy in stimulating the GDP growth. It further determines the most effective channel for growth stimulation. We use Structural Vector Autoregressive (SVAR) model on Kenyan quarterly time series data from 2006 to 2019 to track the response of GDP growth to fiscal policy. The findings reveal that, fiscal policy is effective for growth stimulation only when tax revenue and public debt are used. We find government expenditure is insignificant in influencing growth in Kenya while inflation rate having negative effects on growth. Relative to government expenditure and tax revenue, public debt was found to be the most effective fiscal policy item for growth stimulation. To realize increased growth in Kenya, this study recommends the use of an expansionary fiscal policy through tax revenue and public debt with proper control on inflation.
PREDICTABILITY OF GARCH-TYPE MODELS IN ESTIMATING STOCK RETURNS VOLATILITY. EVIDENCE FROM KENYA
(University of Embu, 2023-11-13) Karugano, Ruthlily Wanjiru; Kariuki, Samuel Nduati; Kariuki, Peter Wang’ombe
Purpose: The aim of this paper was to evaluate which of the seven GARCH-type models, namely sGARCH, IGARCH, EGARCH, TGARCH, GJRGARCH, APARCH, and CGARCH, was suitable for predicting the Nairobi Securities Exchange-listed firms' volatility. Theoritical framework: The Efficient Market Hypothesis is crucial in predicting market value of stocks. Therefore, this study employed the efficient market hypothesis to the the predictability of the stocks returns volatility. Design/Methodology/Approach: In this study, we used census approach to collect data from 49 Nairobi Securities Exchange listed firms. The data was collected from 1st January 2011 to 31st December 2020. TO evaluate the volatility, we used the GARCH-type models. Findings: The study found that the APARCH model as the best suitable for forecasting the volatility of Nairobi Securities Exchange-listed firms. Research, Practical & Social implications: We propose the the APARCH model as the best suitable model for predicting volatility of stock returns. The findings can be used by investors in making judicious financial decisions. For acedmic purpose, the findings are essential in supporting new knowledge of which model is best fit in predicting the NSE stocks returns volatility. Original/ Value: The study contributes to the literature on the best suitable model in predicting the volatility of the stocks returns.
Mediation Effect of Macro-Economic Factors on the Relationship between Banks’ Financial Soundness and Financial Performance
(2020) Kirimi, Peter N.; Kariuki, Samuel N.; Ocharo, Kennedy N.
Analyzing the effect of macro-economic factors is essential for business growth. The study analyzed mediation effect of macroeconomic factors on the relationship between financial soundness and financial performance of 39 commercial banks in Kenya using data from 2009 to 2018. The study was modeled on the theory of production with CAMEL variables as factor inputs and financial performance measures as factor outputs mediated by macro-economic factors. The study found that gross domestic product growth, interest rate, exchange rate and inflation had a mediating effect on the relationship between banks financial soundness and net interest margin. In addition, gross domestic product growth, interest rate and exchange rate were not mediators on the relationship between financial soundness and earnings per share as a financial performance measure. The study also established that exchange rate had mediation effect on the relationship between financial soundness and net interest margin and return on assets respectively. Further, inflation was found to have a positive mediation effect net interest margin, earnings per share and return on assets as measures of financial performance, there was absence of mediation effect when return on equity was used as financial performance measure. Bank management needs to understand the direction of the effect of mediation of macro-economic factors on banks’ financial soundness for effective financial soundness policy formulation to improve financial performance.
Fintech, Asset Portfolio Modeling and Financial Performance of Investment Firms in Kenya
(IDOSI Publications, 2021) Gitonga, Elizabeth N.; Kariuki, Peter W.; Kariuki, Samuel N.
The purpose of this study is to determine the influence of fintech asset portfolio modeling on the financial performance of investment firms in Kenya. The study was guided by capital asset pricing model. Both descriptive and explanatory research designs were employed in this study. The study population was 57 investment firms. Data was collected using questionnaires and an in-depth interview guide. The use of robo advice, online asset visualization, use of passive investment funds in managing investment portfolios and asset management services have positive and significant relationship with performance of investment firms. However, automated trading has a positive but insignificant with performance of investment firms. However, personal financial management is negatively and significantly related with performance of investment firms. The study concluded that fintech asset portfolio in the management assets enhance financial performance; however, the services remain underdeveloped in some investment firms. The study thus recommends for the use of fintech asset portfolio in the management firms assets. Robo-advisors may help create an opportunity for asset managers looking for cheaper alternatives to receive advice on how to manage assets.
The Effect of Accounting Techniques on Small Business Performances in Kenya, Case Study of Embu County
(University of Embu, 2019) Lopusikamar, Boaz Pkiyach
This research has been conducted at County of Embu to investigate the effect of accounting techniques on Small and Medium Enterprises (SMEs) performance in Kenya. Most SMEs in this County of Embu do not progress well due to various constraints, one of them being poor accounting records. Accurate accounting records enable the business to manage its finances and make good financial decisions which in tum improves the performance of the business, Data were collected through questionnaires. The findings in these County of Embu shows that most of SMEs do not keep accounting records. Some of the reasons as to why they do not keep accounting records were: time consuming. lack of knowledge and skills, poor documentation, ignorance and poor support from the workers responsible with records in the organizations. The research data were collected through questionnaires. The study recommends for the SMEs to attend entrepreneurship seminars and short courses whereby they will be able to gain knowledge on accounts record keeping. Public and private organizations should increase effort on SME sector, especially in educating members how to improve their business in case of performance which requires good accounting techniques.

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