The Impact of Taxation on the Economic Growth of Tanzania between 1996 and 2019.

William, Awadhi M. (2021) The Impact of Taxation on the Economic Growth of Tanzania between 1996 and 2019. Masters thesis, The Open University of Tanzania.

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Abstract

The study assessed the impact of total tax revenueon the economic growth of Tanzania. The specific objectives were to examine the effect of total tax revenueon the economic growth of Tanzania, and to examine the trends of different taxes such as corporate tax, PAYE, taxes, excise duty, import duties, VAT and other domestic taxes in Tanzania. The study used time series data of Tanzania for the period of (1996 to 2019) collected from the Bank of Tanzania, National Bureau of Statistics and the World Bank. Vector error correction model for estimation of the time series was used since the data were only stationary in first difference I(1), and there was co integration within the variables. The study also conducted stability test for VAR and VECM models to ensure that the estimates were effective. The study revealed an insignificant positive effect of total tax revenueon economic growth (GDPRate) of Tanzania both in the short and long-run. Also found government spending has a negative impact on economic growth rate both in the short and the long-run, contrary to Wagner’s law of state (1876) which holds that for any country, public expenditure rises constantly as income growth expands, however, many other empirical studies have established that that government spending can have either positive or negative effects on economic growth depending on how and to what sector the government is spending on (Lee, Won and Jei, 2019). Capital accumulation which affected the economic growth of Tanzania positively.It is the study’s recommendations that government further institute systems which broaden the tax bases for taxes with positive impact on the economic growth and review for possible reduction of individual taxes that prove to have negative effects on the economic growth. Keywords: Fiscal Policy, Economic Growth, Taxation, GDPRate, Total tax revenue.

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