To what extent can local governments contribute to economic growth in Tanzania?

Abstract

This study investigates the impact of public expenditures, specifically local governments on economic growth using annual time series data on Tanzania. The study adopts a simple growth accounting model, in which local and central government expenditures are disaggregated into expenditure on investment, recurrent and human capital investment. It is found that all categories of expenditure at local government are positively related to economic growth although consumption on recurrent expenditure is insignificant. The positive relationship between local government expenditure and growth indicates that local government activities follow community priorities by involving them from the planning process. It is also found that local governments allocate their resources more efficiently and the marginal externality of its spending to private sector is greater than that of central government. These results suggest that improving provision of public goods through local governments support the production of more goods and services to the economy. The negative relationship between central government investment expenditures and economic growth suggest a failure of implementing community priorities because of political influence and misappropriation of funds resulting from high discretionary power of central government official government’s officials which may lead to corruption.