Browsing by Author "Ofunguo, Deusdedit Aloyce"

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    The impact of taxation on financial deepening: a case study of Tanzania 1970 – 2006
    (University of Dar es Salaam, 2009) Ofunguo, Deusdedit Aloyce
    This study examines the relationship between taxation and financial deepening. The study employs OLS technique to estimate the impact of taxation and other macroeconomic variables on financial deepening through the velocity of money as well as monetary base multiplier. The theoretical linkage between both velocity of money and monetary base multiplier in determining the quantity of money (M2) in the economy is the main reason for undertaking the task. The regression results suggest that, the tax-to-GDP ratio is negatively related with the velocity of money whereas the square of the tax-to-GDP ratio is positively related with the velocity of money. In contrast, the tax-to-GDP ratio is positively related with the monetary base multiplier while the square of the tax-to-GDP ratio is negatively related with the monetary base multiplier. For other variables incorporated in the model: both real GDP, the rate of inflation and real lending rate are negatively related with the velocity of money and the opposite sign holds for the monetary base multiplier. The general conclusion of the findings is that, the policies which limit financial deepening should be avoided. The government can enhance financial deepening by maintaining the tax rate where it provides an incentive for financial sector development. This is also an incentive to a robust economic growth.