The Effects of Fiscal Policy on the Performance of Commercial Banks in Kenya

Abstract

Fiscal policy refers to the use of government spending and tax policies to influence economic conditions. Fiscal policies have existed for a long time, with major debates between proponents of the Keynesian model and the monetary approach. Fiscal policy can either be contractionary, expansionary, or neutral. This study analyses the literature on the effect of the national budget on banks performance; effect of Taxation on bank performance; and the effect of public expenditure on performance of Banks in Kenya. The literature shows that government expenditure is a good fiscal policy measure in terms of the positive performance of commercial banks however, there is a need to consider the issue of corruption that negatively affects the expenditure controls that are crucial in an effective government approach in terms of the way the authorities ensure effective expenditure programs. Budget surplus and the positive impact on banks’ lending, no direct or clear argument shows the role of budgeting on commercial banks' performance. Taxes also play an important role in developing infrastructures that are crucial for the improved performance of firms. However, gaps exist in literature that needs to explored by further studies.

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