Domestic resource mobilization and long term economic growth in Tanzania

Abstract

The objective of this paper is to examine the long term effects of domestic resource mobilization (DRM) on economic growth. This study used macroeconomic data for a period of 20 years spanning 1996 to 2015. By estimating the Autoregressive distributed lag (ARDL) model, Error Correction Model (ECM) and Impulse Response Functions (IRF), the study found that DRM has significant positive long term effect on economic growth suggesting that increased DRM enhances government ability to finance its budget for an enhanced growth. Although the short run effect is negative and statistically significant which indicate distortionary effects of taxes in the short run. Distortionary effects are in one way a result of a tax system that targets few easy to tax individuals and corporations due to a large informal sector. This study recommends enhancement of DRM through expansion of the tax base, tapping more non-tax revenue, and effectiveness in public spending.

Keywords: Domestic resource mobilization; long term growth; ARDL model; Tanzania