Government Spending and Economic Growth in Tanzania 1985-2015

The importance of understanding the relationship between government spending and economic growth has inspired many scholars to investigate the underlying relationship between these variables. In Tanzania the growth in public spending has become a topical issue in the light of escalating debt level and widening budget deficit; as a results, the government is constantly under pressure to borrow to cover the deficit. The aim of this study was to investigate the relationship between government spending and economic growth in Tanzania. The study used secondary data which was sourced from the Tanzania Ministry of Finance and World Bank websites for the period from 1985 to 2015. The data was analyzed using E-Views tool. The econometric tools used to analyze the data are the Autoregressive Distribution Lag (ARDL) and the Pairwise Granger Causality Test. The variables included in the research are government spending and economic growth. Both variables were stationary at first difference. Empirical findings from the study indicate that there is a positive and significant relationship between government spending and economic growth in Tanzania both in the short-run and the long-run. Further, Granger causality test demonstrated a unidirectional and directional causality from government spending to economic growth. In essence, the study recommended more allocation of resources towards public expenditure, including exploiting public-private partnership as a way of increasing expenditure toward social sectors and infrastructure without necessarily increasing the strain on government resources