The Impact Of Fiscal Policy On Income Distribution In Tanzania: A Computable General Equilibrium Analysis.

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