Government expenditure and economic growth in Tanzania, 1965-2001.

This study has attempted to assess how government expenditure (fiscal policy) influences economic growth in Tanzania using annual data for the period 1965-2001. A modified version of the Solow (1957) model is estimated using the Single Equation Error Correction method to explore empirically the short-run and long-run impacts of government expenditure on economic growth. The regression results show that government expenditure on secondary education and on total education tend to contribute more to economic growth than other variables considered in this study do. The results also show that expenditure on public investment tends to complement private investment in furthering economic growth, but expenditure on public debt servicing tends to retard it. The parameter estimate on a proxy variable for economic reforms indicates that the undertaken economic reforms did not cause a statistically significant impact on real economic growth. The study recommends that, in setting targets for government expenditures, the government must adopt policies that encourage expenditures on education sector particularly in secondary education. The government should also allocate more of its resources to public investment in order to induce a positive response to economic growth. Despite the limitations and shortcomings encountered, in general the findings indicate that in Tanzania, government expenditure promotes economic growth, with the implication that policies adopted may draw from the empirical evidence presented to enhance this role. This will thus be a useful guideline to policy makers when deciding or expenditure allocation and rationalization.