Citation:

Ephraim Oswald Mdee. "Estimating The Pass-through Effect of Taxes on Economic Growth in Tanzania" International Research Journal of Economics and Management Studies, Vol. 2, No. 4, pp. 81-93, 2023.

Abstract:

Using the Nonlinear Autoregressive Distributed Lag (NARDL) model, this study examines the effect of taxes on economic growth in Tanzania from 1966 to 2019. Using the NARDL, the research adds to the body of literature by demonstrating how government spending, capital formation, and human capital contribute to Tanzania's economic growth. The study's findings show that taxes have a pass-through effect on economic growth in Tanzania through human capital. However, little evidence supports the asymmetric effect of taxes on economic growth through physical capital and government spending. The findings revealed a positive, 0.046 percent, pass-through of tax on economic growth as human capital increases. Nonetheless, when human capital decreases, there exists a negative pass-through of tax, 0.048 percent, to economic growth. The results signify the importance for the country of creating a skilled workforce whose impact on both tax base expansions and economic growth is huge. The study, therefore, recommends that the Government invest more into creating skilled human capital in the country, which later adds to the country's growth through the taxes they pay for the economic activities undertaken, both income and consumption taxes. Additionally, the study recommends further studies to research mechanisms for enhancing taxpayer compliance to increase Government revenue in the country.

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Keywords:

Economic Growth, Taxes, Nonlinear Autoregressive Distributed Lag (NARDL), ARDL Bound Test.