The Effect of Tax Revenue on Private Sector Growth in Tanzania

Abstract

The main objectives of the study was to investigate the effect effect. of tax revenue on private sector gmwth in Tanzan,. The studv was cuided by se',. -eral specift ob;ectives .,ere; one to examine the s'n -run relationship between tax re', ,enue and private sector growt in Tanzania. Second was to investigate the Iono-run dynamics betv,‘een tax revenue and private sector growth in Tanzania and lastly was to aqsoss the orandor caus.s bet,.,een tax revenue and private sector growth in Tanzania. The researcher employed time series data with a sarnp',e of 32 observations from 1990 to 2021. The researcher started by examining the unit root characteristic of the variables using ADF and PP test for unit root. The findings indicated that, all variables are integrated of order 1, follows 1(1) process. ARDL bound test were employed to determine the existence of long-run relationship and the result indicated by F-bound and t-bound revealed that, there is a long run relationship among the variables. The findings of the long-run coefficient has indicated that, there is negative and significant relationship between TAX_Rev and private sector growth in Tanzania. In such a way that, in the long-run, a 1 unit increase in in tax revenue %GDP (tax burden) in Tanzania will leads to 1.969 unit decrease in private sector growth in the country, holding other factors constant. The short-run relationship were investigated using ECM and the result shows that, the negative and significant short-run relationship exist betweenprivate sector growth and tax revenue (tax burden). The Granger causality was employed to determine the order of the directional relationship and the findings indicated a uni-directional causal relationship from private sector growth to tax revenue. The researcher recommended that,government of Tanzania,through revenue authority should consider widening tax base and atthe same time ensuring the tax revenue does not hinderthe private sector development and gr