Effect of Innovative Finance on Kenya’s Public Debt

Abstract

This study was to determine the effect of innovative finance on Kenya’s public debt. Specifically, it aimed to establishing the effect of foreign remittance, financial transaction tax and guaranteed loan financing on public debt level in Kenya. A descriptive research design was adopted and population of interest for the study was Kenya. Secondary data for a period of 5 years from 2014 to 2018 was utilized while the Vector auto regression model was estimated to establish the relationship between the variables. The results indicated that there is a positive and significant relationship between foreign remittance and public debt in Kenya while a negative and significant relationship was established between financial transactions tax, no significant relationship was established guaranteed loans and public debt in Kenya. The study concludes that foreign remittance has a positive and significant effect on public debt level in Kenya while financial transactions tax has a negative and significant effect. It therefore recommends that the government through relevant institutions should strengthen policies on various innovative taxes including financial transactions tax. This will ensure that more revenue is obtained through taxes; this can be used to repay existing loan as well as financing development.