The Impact of Fiscal Policy on Income Distribution in Tanzania: A Computable General Equilibrium Analysis

57 Pages Posted: 27 Jun 2019

See all articles by Asiya Maskaeva

Asiya Maskaeva

The University of Dodoma

Joel Mmasa

The University of Dodoma

Nicodemas Lema

School of Business Studies and Economics

Mgeni Msafiri

The University of Dodoma

Date Written: June 17, 2019

Abstract

The Tanzanian government has established a goal to transform the country into a middle-income and semi-industrialized state by 2025. To promote this transformation, the government exempted the Value Added Tax on capital commodities in FY 2017-2018 as a way to promote utilization of these commodities by manufacturing industries and generate growth, employment, and increased incomes. This study analyzes the impact of a reduction in Value Added Tax on capital commodities (electricity, vehicles, machinery, and equipment) under two different closure rules:

(1) fixed governmental expenditures and flexible governmental savings

(2) flexible governmental expenditures and fixed governmental savings.

Under the first regime, government savings declined and industries that depended heavily on government investments suffered. In the second, output increased for all industrial sectors, leading to a decrease in average unemployment. Real consumption increased for all but the richest household categories.

Keywords: Fiscal Policy, Government Budget, Household Income, CGE Modelling, Social Accounting Matrix

JEL Classification: C68, E62, H50, E64

Suggested Citation

Maskaeva, Asiya and Mmasa, Joel and Lema, Nicodemas and Msafiri, Mgeni, The Impact of Fiscal Policy on Income Distribution in Tanzania: A Computable General Equilibrium Analysis (June 17, 2019). Partnership for Economic Policy Working Paper No. 2019-07. Available at SSRN: https://ssrn.com/abstract=3405460 or http://dx.doi.org/10.2139/ssrn.3405460

Asiya Maskaeva (Contact Author)

The University of Dodoma ( email )

P.O.Box 259,Dodoma
Dodoma, 00255
Tanzania

Joel Mmasa

The University of Dodoma ( email )

P.O.Box 259,Dodoma
Dodoma, 00255
Tanzania

Nicodemas Lema

School of Business Studies and Economics

P.O.Box 1208
Dodoma, 00255
Tanzania

Mgeni Msafiri

The University of Dodoma ( email )

P.O.Box 259,Dodoma
Dodoma, 00255
Tanzania

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