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

Asiya Maskaeva, Joel Mmasa, Nicodemas Lema and Mgeni Msafiri

Working Papers MPIA from PEP-MPIA

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 (search for similar items in EconPapers)
JEL-codes: C68 E62 H50 E64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp and nep-mac
Date: 2019
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Handle: RePEc:lvl:mpiacr:2019-07