Browsing by Author "Mpatila, Francis A"

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    Impact of inflation on domestic savings: the case of Tanzania
    (University of Dar es Salaam, 1985) Mpatila, Francis A
    This study addresses itself to the controversy which exists on the relationship between inflation and the rate of domestic saving in the Tanzanian context. It is argued that most of the developing countries are poor and highly dependent on foreign assistance. Nonetheless, the assistance is not coming in required quantities and time, rendering it inevitable for these countries to recourse to inflationary financing means. However, there seems to be no general consensus on the overall effects of inflation on domestic saving. Those who find merit on inflationary financing argue that inflation will help raise domestic saving and hence growth since it redistributes income from low savers to high savers. Those opposed to it argue that inflation will discourage saving since it reduces the purchasing power of money and hence the purchasing power of the income set aside. From the above, it can be seen that the effect of inflation on domestic saving is a priori indeterminate. However, this study argues that if inflation is classified according to its cause, its ultimate effect on the rate of domestic saving can be distinguished. Thus, rather than to king inflation as a general rise in the price level, the study distinguishes between demand-pull and cast push types of inflation. Under this classification it is hypothesized that demand - pull inflation will encourage the rate of domestic saving whereas cost-push inflation will discourage it. This main hypothesis is tested in the study. Various literature on the existing controversial relationship between inflation and domestic saving is critically reviewed under the Keynesian, monetarist and structuralist approaches; after which a brief overview of the Tanzanian inflation is presented. Econometric techniques are applied as a tool of analysis, and the study further presents the simultaneous equations model which hints on the simultaneous dependence between the saving rate, investment rate and growth of Gross Domestic Product. The model when estimated has somehow validated our hypothesis that demand-pull inflation will encourage domestic saving whereas cost-push inflation will discourage it. However, the multiplier analysis has documented the total negative impact of inflation on domestic saving irrespective of its source. Pursuant to the above, the study recommends that the government should try as much as possible to reduce and control its expenditure so as to control the deficits which prompts its increased borrowing from the banking system in the process fuelling inflation, also productive investment of the funds is highly recommended.The study also underscores the point that efforts should be launched to effectively mobilise domestic savings rather than depending on "uncertain" foreign aid.