Tanzania’s Budget Deficit and its Effect on Gross Domestic Product: Empirical Analysis

AUTHORS: James Daniel Chindengwike

ABSTRACT:the study wanted to create the impact of budget deficit on economic growth in Tanzania. The determinants recognized in the study are foreign exchange, interest rate, budget deficit rate and inflation rate. The theories that were directing the study are International Dependence Theory, Neoclassical Counter- Revolution Theory and Keynesian, Linear Stages of Growth. The motive behind to carried out this study was the Gross Domestic Product (GDP) was goes down. The study opted quantitative research approach and correlation research design in form of secondary data from Tanzania for a ten (10) year period from 2010 to 2020 (Annual Data). From the population of the study the sample size will be 10 observations. The data was collected from reliable sources such as Ministry of Finance and Planning – Tanzania and International Monetary Fund (IMF). The results revealed that the impact of budget deficit on GDP depends on how the funds financing the deficit used, if it was used for development reasons then it would have a positive one but if it is for meeting the recurring expenditures then there would be a negative association between the two. The study recommends that Tanzania should expand and manage effectiveness in the tax base in order to support their expenditure sufficiently and assist to increase the multiplier that promote to create output therefore economic development. The study also recommends that Tanzania should generate more revenue sources to boost the income in order to reduce dependence on developed countries and also to generate favorable environment for more opportunities.