The Effects Of Tax Structure On Economic Growth And Income Inequality In Tanzania

ABSTRACT

This paper investigates how the tax systems impact the country‟s economic growth and income distribution over the period 1996 to 2016. The study uses a single equation method in determining the relationship that exists between tax structures and economic growth and income inequality. This study contributes to the literature in country-specific studies particularly in Tanzania as it introduces the impact of tax structure on economic growth and income inequality. The study hence employed Autoregressive distributive lag model (ARDL) and Error Correction Model (ECM) to capture the long-run and short-run relationships. By using corporate income tax and personal income tax, the impact of tax structure on economic growth and income inequality was determined while controlling for other determinants of growth and income distribution. The study finds no evidence of any relationship between personal income tax, corporate income tax and economic growth. The results also show a strong correlation is found between corporate income tax, personal income tax and income inequality.