Determinants and growth impact of government spending in Tanzania

This study examines determinants and growth impact of government spending in Tanzania using ARDL modeling for co-integration in in a sample-splitting framework. The study is motivated by multiple and diverse views in the literature cum increased government spending amid resource shortfall. The study finds evidence that national income and government spending are mutually supportive in the sense that one feeds into the other. Degree of openness, private investment, public debt and significant upheavals or shocks was found driving up government spending. Econometric results favored Government spending on economic services as well as government spending on administration or general public services and social services as good for powering economic growth. Estimated coefficients have shown that in the long-run, these variables have markedly positive influence both on private investment and growth of the economy. Insofar as policy is concerned, if causation exist between government spending and national income, it would further underscore the need to align growth in government spending to economic growth. Given the current economic setting with private investment being economic growth engine, public policy makers can strategically support various categories of spending that are deemed relevant to stimulate private investment and thereby economic growth. Thus, government spending must or must not to shrink for growth to increase, instead, there is potential for increasing economic growth by restructuring government expenditure or getting its composition right through close attention to their elasticities on private investment.