Tax Revenue and Economic Growth: The Role of Public Financial Management

Abstract

The study was conducted to assess the effect of tax revenue on economic growth in Tanzania. Specifically, the study looked at the extent to which corporate income tax and value added tax revenues affect economic growth, with the moderation of public financial management. The study utilized quantitative secondary data in a span of twenty-five (25) years period (1998-2022), sourced from the Tanzania Revenue Authority (TRA) and the World Bank databases. Informed by the statistical test results for regression assumptions, data analysis was carried out using STATA software version 17 and the Autoregressive Integrated Moving Average with Exogenous variable (ARIMAX) model was deployed for the time series data analysis. The finding revealed that corporate income tax has no significant effect on economic growth and the moderation effect of public financial management turns the effect into positive and significant. Again, the found-out effect of value added tax on economic growth is not significant and the moderation effect of public financial management turns the effect into negative and significant.  Based on the study findings, the research suggests that the responsible government ministry should take a proactive approach to economic planning that considers the long-term implications of tax policies and public financial management practices. Furthermore, The Tanzania Revenue Authority (TRA) should consider reassessing the current corporate income tax and value added tax rate to identify the optimal balance that maximizes tax revenues while avoiding counterproductive effects on economic growth. Future research needs to make further determination of impact of other categories of taxes to the economic growth to get wider perspective and more explanatory appraisal of effect of other taxes on the economic growth.

Keywords: Economic growth, corporate income tax, Value added tax, Public financial management, Tanzania