Revenue Generation Capacity in Developing Countries: Implications for Physical and Human Capital Development in Tanzania, Kenya and Uganda

Abstract

This paper is an attempt to investigate the effects of tax revenue  generation capacity on public spending in Sub-Saharan Africa drawing  empirical lessons from three East African countries-Tanzania, Kenya and Uganda. It employs the co-integration and error-correction modeling  framework to analyze the effects of erratic and inadequate revenue  generation on physical and human capital development in Tanzania, Kenya, and Uganda using time-series data over the period 1970-2005.The results unambiguously demonstrate that changes in tax revenue have  strong impacts on physical and human capital development spending in the three countries. The policy lessons that can be drawn from the findings of this paper is that the three countries should strike a balance of the  composition of government expenditure; reprioritize public expenditure into productive spending and strive to generate sufficient tax revenue to finance budget expenditures on physical and human capital development in order to reduce poverty and promote long-run economic development.

Key words: Tax Revenue Generation Capacity; Physical infrastructure; Human Capital, Tanzania, Kenya and Uganda