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

Author

Listed:
  • Asiya Maskaeva
  • Joel Mmasa
  • Nicodemas Lema
  • Mgeni Msafiri

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.

Suggested Citation

  • Asiya Maskaeva & Joel Mmasa & Nicodemas Lema & Mgeni Msafiri, 2019. "The Impact of Fiscal Policy on Income Distribution in Tanzania: A Computable General Equilibrium Analysis," Working Papers MPIA 2019-07, PEP-MPIA.
    • Handle: RePEc:lvl:mpiacr:2019-07
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    Cited by:

    1. Elineema Kisanga & Vincent Leyaro & Wahabi Matengo & Michael Noble & Helen Barnes & Gemma Wright, 2021. "Assessing the distributional impact of lowering the value-added tax rate for standard-rated items in Tanzania and options for recouping revenue losses," WIDER Working Paper Series wp-2021-38, World Institute for Development Economic Research (UNU-WIDER).

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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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