IDEAS home Printed from https://ideas.repec.org/p/lvl/mpiacr/2019-07.html
   My bibliography  Save this paper

The Impact of Fiscal Policy on Income Distribution in Tanzania: A Computable General Equilibrium Analysis

Author

Listed:
  • Asiya Maskaeva
  • Joel Mmasa
  • Nicodemas Lema
  • Mgeni Msafiri

Abstract

The Tanzanian government has established a goal to transform the country into a middle-income and semi-industrialized state by 2025. To promote this transformation, the government exempted the Value Added Tax on capital commodities in FY 2017-2018 as a way to promote utilization of these commodities by manufacturing industries and generate growth, employment, and increased incomes. This study analyzes the impact of a reduction in Value Added Tax on capital commodities (electricity, vehicles, machinery, and equipment) under two different closure rules: (1) fixed governmental expenditures and flexible governmental savings (2) flexible governmental expenditures and fixed governmental savings. Under the first regime, government savings declined and industries that depended heavily on government investments suffered. In the second, output increased for all industrial sectors, leading to a decrease in average unemployment. Real consumption increased for all but the richest household categories.

Suggested Citation

  • Asiya Maskaeva & Joel Mmasa & Nicodemas Lema & Mgeni Msafiri, 2019. "The Impact of Fiscal Policy on Income Distribution in Tanzania: A Computable General Equilibrium Analysis," Working Papers MPIA 2019-07, PEP-MPIA.
    • Handle: RePEc:lvl:mpiacr:2019-07
    as

    Download full text from publisher

    File URL: https://portal.pep-net.org/document/download/33119
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Auriol, Emmanuelle & Warlters, Michael, 2012. "The marginal cost of public funds and tax reform in Africa," Journal of Development Economics, Elsevier, vol. 97(1), pages 58-72.
    2. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70(3), pages 215-215.
    3. Fjeldstad, Odd-Helge & Kagoma, Cecilia & Mdee, Ephraim & Sjursen, Ingrid Hoem & Somville, Vincent, 2020. "The customer is king: Evidence on VAT compliance in Tanzania," World Development, Elsevier, vol. 128(C).
    4. Alesina, Alberto & Di Tella, Rafael & MacCulloch, Robert, 2004. "Inequality and happiness: are Europeans and Americans different?," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2009-2042, August.
    5. Haroon Bhorat & Karmen Naidoo & Kavisha Pillay, "undated". "Growth, Poverty and Inequality Interactions in Africa: An Overview of Key Issues," UNDP Africa Policy Notes 2016-02, United Nations Development Programme, Regional Bureau for Africa.
    6. Jean L. Erero, 2015. "Effects of Increases in Value Added Tax: A Dynamic CGE Approach," Working Papers 558, Economic Research Southern Africa.
    7. Ballard, Charles L. & Fullerton, Don & Shoven, John B. & Whalley, John, 2009. "A General Equilibrium Model for Tax Policy Evaluation," National Bureau of Economic Research Books, University of Chicago Press, number 9780226036335, July.
    8. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
    9. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "Introduction to "A General Equilibrium Model for Tax Policy Evaluation"," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 1-5, National Bureau of Economic Research, Inc.
    10. Alderman, Harold & del Ninno, Carlo, 1999. "Poverty Issues for Zero Rating VAT in South Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 8(2), pages 182-208, July.
    11. repec:aer:wpaper:92 is not listed on IDEAS
    12. Martin Cicowiez & Bernard Decaluwé & Mustapha Nabli, 2017. "Optimal policy design: A CGE approach," Working Papers MPIA 2017-07, PEP-MPIA.
    13. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(1), pages 21-30.
    14. Willem Gunning, Jan & Keyzer, Michiel A., 1995. "Applied general equilibrium models for policy analysis," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 35, pages 2025-2107, Elsevier.
    15. repec:idq:ictduk:14093 is not listed on IDEAS
    16. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    17. Atkinson, Anthony B. & Lugo, Maria Ana, 2010. "Growth, poverty and distribution in Tanzania," LSE Research Online Documents on Economics 36376, London School of Economics and Political Science, LSE Library.
    18. Fan, Shenggen & Nyange, David & Rao, Neetha, 2005. "Public investment and poverty reduction in Tanzania: evidence from household survey data," DSGD discussion papers 18, International Food Policy Research Institute (IFPRI).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Elineema Kisanga & Vincent Leyaro & Wahabi Matengo & Michael Noble & Helen Barnes & Gemma Wright, 2021. "Assessing the distributional impact of lowering the value-added tax rate for standard-rated items in Tanzania and options for recouping revenue losses," WIDER Working Paper Series wp-2021-38, World Institute for Development Economic Research (UNU-WIDER).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Spencer Bastani & Daniel Waldenström, 2020. "How Should Capital Be Taxed?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 812-846, September.
    2. Alan G. Futerman & Luciano Villegas, 2022. "An Austrian critique of the neoclassical approach to indirect taxes," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 35(4), pages 517-529, December.
    3. Stiglitz, Joseph E., 2018. "Pareto efficient taxation and expenditures: Pre- and re-distribution," Journal of Public Economics, Elsevier, vol. 162(C), pages 101-119.
    4. Céline DE QUATREBARBES & Luc SAVARD & Dorothée BOCCANFUSO, 2011. "Can the removal of VAT Exemptions support the Poor? The Case of Niger," Working Papers 201106, CERDI.
    5. Papageorgiou, Yorgos Y. & Pines, David, 2000. "Externalities, Indivisibility, Nonreplicability, and Agglomeration," Journal of Urban Economics, Elsevier, vol. 48(3), pages 509-535, November.
    6. Holmoy, Erling & Vennemo, Haakon, 1995. "A general equilibrium assessment of a suggested reform in capital income taxation," Journal of Policy Modeling, Elsevier, vol. 17(6), pages 531-556, December.
    7. Spencer Bastani & Sebastian Koehne, 2024. "How Should Consumption Be Taxed?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 80(3), pages 259-302.
    8. Bas (B.) Jacobs & Rick (F.) van der Ploeg, 2017. "Should Pollution Taxes Be Targeted At Income Redistribution?," Tinbergen Institute Discussion Papers 17-070/VI, Tinbergen Institute.
    9. Antoine Bozio & Malka Guillot & Quentin Laffeter, 2015. "Portée et limites du modèle Taxipp pour l’analyse redistributive des prélèvements obligatoires," Économie et Statistique, Programme National Persée, vol. 481(1), pages 31-52.
    10. Jacobs, Bas & van der Ploeg, Frederick, 2019. "Redistribution and pollution taxes with non-linear Engel curves," Journal of Environmental Economics and Management, Elsevier, vol. 95(C), pages 198-226.
    11. World Bank, 2001. "Mexico Energy Environment Review," World Bank Publications - Reports 20297, The World Bank Group.
    12. Homburg, Stefan, 2010. "Allgemeine Steuerlehre: Kapitel 1. Grundbegriffe der Steuerlehre," EconStor Books, ZBW - Leibniz Information Centre for Economics, number 92547, March.
    13. Rolf Aaberge & François Bourguignon & Andrea Brandolini & Francisco H. G. Ferreira & Janet C. Gornick & John Hills & Markus Jäntti & Stephen P. Jenkins & Eric Marlier & John Micklewright & Brian Nolan, 2017. "Tony Atkinson and his Legacy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(3), pages 411-444, September.
    14. Engen, Eric M. & Skinner, Jonathan, 1996. "Taxation and Economic Growth," National Tax Journal, National Tax Association;National Tax Journal, vol. 49(4), pages 617-642, December.
    15. Gravelle, Jane G & Kotlikoff, Laurence J, 1995. "Corporate Taxation and the Efficiency Gains of the 1986 Tax Reform Act," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 51-81, June.
    16. Matt Benge & Marie Pallot & Hamish Slack, 2013. "Possible Lessons for the United States From New Zealand’s Gst," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(2), pages 479-498, June.
    17. Boadway,Robin & Cuff,Katherine, 2022. "Tax Policy," Cambridge Books, Cambridge University Press, number 9781108949453, January.
    18. J.B. Burbidge, 2001. "Awkward Moments in Teaching Public Finance," Department of Economics Working Papers 2001-01, McMaster University.
    19. Borger, Bruno De, 2011. "Optimal congestion taxes in a time allocation model," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 79-95, January.
    20. Lars-H. R. Siemers, 2014. "A General Microsimulation Model for the EU VAT with a specific Application to Germany," International Journal of Microsimulation, International Microsimulation Association, vol. 7(2), pages 40-93.

    More about this item

    Keywords

    Fiscal Policy; Government Budget; Household Income; CGE Modelling; Social Accounting Matrix;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lvl:mpiacr:2019-07. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Manuel Paradis (email available below). General contact details of provider: https://edirc.repec.org/data/cdvlvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.