The Impact of Government Spending on Growth and or Wealth Creation in Tanzania (1960-2015)

Abstract

This study examines the growth and wealth creation impact of government spending in Tanzania during the 1960-2015 period using Autoregressive Distributed Lags (ARDL) modeling for co-integration in a full and sample-splitting framework. The study is motivated by multiple and diverse views in the literature cum increased government spending amid resource shortfall. The study found that Government Spending-Not Surpluses and Deficits-Is What Matters Most. 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. 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 and wealth to increase, instead, there is potential for increasing economic growth and wealth creation firstly, by restructuring government expenditure or getting its composition right through close attention to their elasticities on private investment, and secondly, for government activity to be wealth generating, it must produce more wealth than it consumes.