The Growth of Government Spending in Lesotho

The paper analyses the dynamics of government spending growth in Lesotho using the multivariate cointegration techniques for the period 1980-2010. The results indicate that government spending is positively related to income and population while negatively related to tax share in the long-run. The latter supports the idea of fiscal illusion caused by budget deficits, which lessen the perceived cost of public spending to taxpayers. The role of internal and external shocks on government spending is also investigated in this study but such factors are found to be less important in determining the growth of government expenditure in Lesotho.