1,720,968 research outputs found
Tax Rates and Tax Evasion: Evidence from Missing Imports in Tanzania
Get PDFTax evasion is the basic characteristic of many developing countries. De facto tax collections are consequently far below revenue implied by published or de jure tax rates. This paper empirically examines tax rates (tariff plus VAT rates) as the determinants of customs revenue evasion across products, based on a systematic analysis of discrepancies in trade declarations for trading partners, United Republic of Tanzania, Republic of South Africa and China. The results indicate that trade gap is highly correlated with tax rates, that is, much more value is lost for products with higher tax rates. The results also show that the trade gap is correlated with tax rates on closely related products from Republic of South Africa, implying that evasion takes place through misclassification of imports from higher-taxed categories to lower-taxed ones. However, there is no evidence of misclassification of imports from China. The wide divergences between the effective and statutory tax rates in Tanzanian tax system indicate that there is a scope for raising tax revenue without increasing tax rates by reinforcing tax and customs administrations and reducing tax evasion
The Revenue Implications of Trade Liberalization in Tanzania
Get PDFThis paper examines the argument that trade liberalization depresses the import duty revenue, and consequently adversely affects the total tax revenue. The study is thought to be significant because Tanzania experiences difficulty in replacing import duty revenue loss as a consequence of trade reform by strengthening its consumption tax system. In the course of analysis, cointegration analysis and error correction modelling are employed over the 1979/80-2009/10 period. The empirical results show that import duty revenue-to-GDP ratio is positively related to tariff rates, implying that a reduction in the tariff rates results in a significant loss of import duty revenue. The results also show that the removal of protectionist policies led to an increase in import-to-GDP ratio which in turn led to rising shares of import duty revenue in GDP. Finally, the results generate some policy implications. The proper issue in tax design under trade liberalization, Tanzania needs to strengthen the domestic tax system and raise tax revenue without increasing tax rates by reinforcing tax and customs administrations so as to maintain fiscal stability
Analysis of Budget Deficits and Macroeconomic Fundamentals: A VAR-VECM Approach
No full textAim/purpose - This paper examines the relationship between budget deficits and selected macroeconomic variables in Tanzania for the period spanning from 1966 to 2015. Design/methodology/approach - The paper uses Vector autoregression (VAR) - Vector Error Correction Model (VECM) and variance decomposition techniques. The Johansen's test is applied to examine the long run relationship among the variables under study. Findings - The Johansen's test of cointegration indicates that the variables are cointegrated and thus have a long run relationship. The results based on the VAR-VECM estimation show that real GDP and exchange rate have a negative and significant relationship with budget deficit whereas inflation, money supply and lending interest rate have a positive one. Variance decomposition results show that variances in the budget deficits are mostly explained by the real GDP, followed by inflation and real exchange rate. Research implications/limitations - Results are very indicative, but highlight the importance of containing inflation and money supply to check their effects on budget deficits over the short run and long-run periods. Also, policy recommendation calls for fiscal authorities in Tanzania to adopt efficient and effective methods of tax collection and public sector spending. Originality/value/contribution - Tanzania has been experiencing budget deficit since the 1970s and that this budget deficit has been blamed for high indebtedness, inflation and poor investment and growth. The paper contributes to the empirical debate on the causal relationship between budget deficits and macroeconomic variables by employing VAR-VECM and variance decomposition approaches
Response of Stock Market Development to Monetary Policy: A Tanzanian Stock Market Perspective
Get PDFThis paper examines the response of stock market development to monetary policy in Tanzania using monthly time-series data for the period spanning from 2011 to 2020. The paper employs the autoregressive distributed lag (ARDL) to determine the response of stock market to monetary variables namely; money supply, inflation, exchange rate and interest rate. All the variables in the model are statistically different from zero. Based on these results, the paper showsthat there is a negative response of stock market development to interest rate and inflation suggesting that an increase in interest rate or inflation will result in a decrease in domestic market development. Conversely, empirical results show that there is a positive response of domestic market development to changes in money supply or real exchange rate suggesting that an increase in money supply or the exchange rate will lead to an increase in domestic market capitalization. The implication of this paper is that investors and policymakers should take into account the changes of monetary variables before making stock investment or policy to stabilize the stock market performance, which implicitly has an impact on the overall economy
Corruption, governance and tax revenues in Africa
Get PDFIn this paper we analyze the effects of institutional variables (corruption and governance), structural variables (per capita income, trade openness, inflation and share of agriculture in GDP), and policy variables (tax rate and tariff rate) on total tax revenues, direct taxes, indirect taxes and trade taxes using panel data set for 30 African countries over the 1996-2016 period. All estimates are based on fixed effects (FE) and random effects (RE) models. Using Hausman test, RE is earmarked to be the more preferred model in this paper. The RE regression results show that corruption and governance are two main determinants of tax revenues in Africa. While corruption has a significant negative effect on tax revenues, good governance measured in terms of government effectiveness, regulatory quality, rule of law and voice and accountability tends to raise tax revenue generation and in particular, indirect taxes. In the same vein, governance in form of political stability tends to have a very significant effect on direct taxes and international trade taxes. The basic intuition behind these results is that higher institutional capacity and lower corruption enhance tax revenue generation in the economy. Intriguingly, empirical results show that tariff rates tend to have a strong negative effect on total tax revenue but at the same time they have a strong positive effect on trade tax revenue. Moreover, trade openness tends to have a strong positive relationship with tax revenue. Overall, results suggest that to raise more tax revenue, governments should reduce corruption, improve tax and customs administration and raise revenues from tax categories that are less susceptible to corruption. They should as well enhance trade openness
The relationship between Trade Liberalization, Growth and Balance of Payments in Sub-Saharan Africa: Insights from Dynamic Panel Data Analysis
Get PDFThe general objective of this paper is to analyze the relationship between trade liberalization, growth, and the balance of payment in Sub-Saharan Africa. The paper covers a total of 37 sub-Saharan African countries for a period of 24 years, spanning from 1996 to 2019. The formal regression analysis makes use of generalized moment methods (GMM). We also allow control variables in sets of regressions, such as terms of trade, gross fixed capital formation, inflation, labor force, government debt, foreign direct investment, and real effect exchange rate. First, we examine the impact of trade liberalization, measured by trade-to-GDP ratio and tariffs, on economic growth (real GDP). Next, we analyze the impact of growth on trade balance and current account balance to examine whether higher economic growth due to trade liberalization leads to an effect on the balance of trade. Results in the growth model suggest that the trade-to-GDP ratio has a positive and significant effect on economic growth while tariffs exert no effect on growth. Empirical results show that in the balance of trade and current account balance models, economic growth, trade-to-GDP ratio, and tariffs exert a positive and significant impact on both the balance of trade and current account. The results imply that sub-Saharan governments and policymakers should pursue policies that will promote trade openness
Institutions and economic growth in Africa: Evidence from panel estimation
Get PDFThere is growing emphasis on the role of institutions on explaining Africa’s economic growth ahead of the traditional factors such as capital accumulation. However, it is not clear which of the institutions and governance indicators namely control of corruption, government effectiveness, political stability, regulatory quality, rule of law and voice and accountability matter most. This paper empirically examines the impact of institutions on economic growth in Africa. The paper uses a sample of 48 countries for the1996-2016 period. The overall number of observations is 912. The paper applied generalized methods of moment (GMM), fixed effects (FE) and random effects (RE) models. However, due to the fact that GMM is well suited to deal with potential endogeneity problems in the model, inferential statistics of this paper are drawn from GMM regression results. Results of the FE and RE regressions are presented in appendix. Empirical results show that institutions really matter for Africa’s economic growth. Among the institutional quality indicators political stability appears to be the most significant factor in explaining real GDP per capita growth in Africa. However, it is worth noting that, the quality of institutions alone may not be sufficient. Along with institutions, the paper reveals that structural factors such as liberalization of trade, fixed capital formation, labour force and foreign direct investment have a significant effect on Africa’s economic growth. The implication is that, a policy mix with the aim of improving the quality of institutions as well as reducing trade restrictions, enhancing both domestic and foreign investment and improving the quality of labour force would enhance economic growth in Africa
An Econometric Analysis of Demand for Money and its Stability in Tanzania
Get PDFAbstract. This paper examines the determinants of demand for money and its stability in Tanzania using annual time series data spanning from 1966 to 2015. Economic analysis of the money demand function is facilitated by the Johansen cointegration, vector autoregressive-vector error correction model (VAR-VECM) and variance decomposition with the main objective of analyzing the factors which, in both short run and long run, influence its movements. The study is thought to be significant because the demand for real money balances serves as the core link between the monetary policy and the real sector of the economy. Based on the annual data under the period of study, cointegration results reveal that there is a long-run relationship between real money balances and the explanatory variables namely, real GDP, deposit interest rate, real exchange rate and inflation rate. Consistent with money demand theory, the VECM results show that the demand for real money balances is positively related with scale variable (real GDP) but it responds inversely to opportunity cost of holding money (deposit interest rate and inflation rate). Moreover, results provide evidence that the demand for real money balances and real exchange rate are positively associated. Furthermore, after incorporating the stability tests, the empirical results show that real money demand function is stable over the 1966-2015 period, suggesting that it is possible to use the narrow money aggregate as target of monetary policy in Tanzania.Keywords. Money demand, VAR-VECM model, Stability.JEL. C32, E41, E52
Foreign Direct Investment and Sectoral Performance in Tanzania
Get PDFAbstractAlthough it may seem natural to argue that Foreign Direct Investment (FDI) can bridge the investment gap in developing countries’ economy, which in turn foster economic growth, this paper shows that the effect of FDI vary greatly across sectors. In fact, there is a lack of systematic evidence on the actual impact of FDI on the host country. An empirical analysis using time series data spanning from 1970 to 2015 and applying Error Correction Mechanism, suggests that FDI exerts a negative effect on agriculture value added. Unsurprisingly, FDI tends to have a positive effect on manufacturing, construction and transport, storage and communication sectors. Evidence from the mining sector is not clear despite the fact that the sector constitutes a substantial proportion of FDI inflows. The unexpected negative causal relationship between FDI inflows and agricultural sector in Tanzania could be because of the low level of FDI in the sector relative to other sectors. However, it is possible for FDI to be contributing to the GDP through manufacturing, construction and transport, storage and communication sectors and yet not increasing the welfare of the people in the country. Agriculture sector, which constitutes more than 70 percent of the total labour force, contributes, on average, less than 30 percent, in total GDP. Understandably, FDI in the agricultural sector can improve the welfare in the country than FDI in mining and manufacturing sectors. Given the importance of the subject, it is surprising to find that very little effort has been devoted to quantifying the sources of agricultural decline. Key words: FDI; Sectoral composition; Agricultural sector; Mining sector and Manufacturing sectorJEL: F23; F36; F4
Nonlinearities in Inflation and Growth Nexus: The Case of Tanzania
Get PDFAbstract. Achieving high economic growth rate while maintaining low inflation rate, has become the main objective of monetary authorities all over the world. Indeed, empirical literature reflects that high inflation rates are detrimental to long run growth and entail welfare costs. To achieve this objective, central banks have availed different options from time to time which include inflation targeting. Monetary authorities in Tanzania have been targeting an inflation level of around 5 percent per annum for economic policy purposes. However, when high inflation is to be controlled, tight monetary policy is put in place which might in turn affect the economic activity. Also, the Tobin effect suggests that inflation causes individuals to substitute out of money and into interest earning assets, which leads to greater capital intensity which in turn promotes economic growth. Against these major points, this paper examines a non linear relationship between inflation and economic growth using both a quadratic and threshold endogenous models and attempts to identify the existence of threshold effects between these variables. The paper uses a data set spanning from 1967 to 2015. The most interesting finding of the estimations is that the estimated coefficient of the linear term of inflation is negative while the estimated coefficient of the square term of inflation is positive, suggesting a U-shaped effect as opposed to inverse or inverted U-shaped relationship found in other countries by previous studies. These results suggest that the Tobin effect may be valid for high inflation, in which people strongly realize the importance of substituting money for interest-bearing assets. This leads to an increase in capital investment, and in turn, an increase in economic growth even with high inflation rate. However, this U-shaped relationship between inflation and economic growth suggests that, the economy is better off at extremely low inflation episodes. The optimal inflation rate that ranges between 3.25 percent and 3.75 percent is obtained by minimizing the residual sum of squares and/or maximizing adjusted R-squared. These findings have some policy implications for the policymakers and development partners. The paper is consistent with policy suggestions by international agencies. Efforts to minimize inflation to a very low level are likely to have a positive effect on economic growth.Keywords. Inflation; Economic growth; Threshold effects.JEL. E31, C13, 040
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