The Impact of Taxation on Economic Growth in Tanzania.

Murebere, Margreth Faraja (2023) The Impact of Taxation on Economic Growth in Tanzania. Masters thesis, The Open University of Tanzania.

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Abstract

The study investigated the impact0of taxation on0economic growth0in Tanzania. Specifically, the study looked at the impact0of tax revenues and tax rates on economic growth. Also, the study examined the impact of the moderator's government expenditures0on the relationship0between taxation0and economicgrowth. The theoretical model for0this study was0based on0the neoclassical growth model. Also, the research applied two theories, including classical0theory and optimal taxation theory. The study applied causal research design, descriptive statistics, trend analysis, and time-series analysis. Moreover, in the0analysis of the data, the study applied autoregressive distributive lag (ARDL). Furthermore, various econometric tests, such as unit root tests, cointegration tests, and diagnostic tests, were used. Results0show that0the tax revenue (p-value = 0.0424) is positive statistically significant at 5% in the first lag (L1), and the tax rate (p-value = 0.073) is negative statistically significant at 5% in the first lag (L1). Also, results show that government expenditure (p-value = 0.234) is not statistically significant. Therefore, the study concludes that0tax revenue0has a positive impact on economic growth, while tax rate has a negative impact0on economic0growth. The study recommends that the0government should restructure a well-designed tax system to incentivize businesses and individuals to invest, save, and work harder, leading to a better economy. By encouraging investment, stimulating consumer spending, attracting foreign investment, fostering entrepreneurship, reducing tax evasion, and introducing reasonable tax rates, a country can guarantee sustained economic growth. Keywords: Government Expenditure, Economic Growth, Tax Rate, Tax.

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