Impact of Revenue Collection on Economic Growth in Zanzibar

Abstract

The purpose of this study was to examine the relationship between revenue collections and economic growth in Zanzibar is tested empirically. The study was attempted to investigate the cointegrating relationship and causality between the variables using VECM model covering the period from 2000Q1 through 2019Q4. The study employed modern time series econometrics techniques such as, unit root test, lag selection criteria, cointegration test. The econometric analysis established that total revenue collected has a positive effect on real GDP Zanzibar. The result shows that total revenue and capital formation have a positive and significant effect on economic growth. Whereas, inflation rate and labor have a negative effect on real GDP as a measure of economic growth in Zanzibar in the long run. The researcher recommended that the government should intensify efforts generating tax revenue, establish a strong fiscal responsibility in the country, adopt tax reforms that would encourage increase in investment and policy to improve labor productivity should be sustained while policy to improve non-tax revenue is needed in a country.