Revenue Generation Capacity in Developing Countries: Implications for Physical and Human Capital Development in Tanzania, Kenya and Uganda
This paper is an attempt to investigate the effects of tax revenue generation capacity on public spending in Sub-Saharan Africa drawing empirical lessons from three East African countries-Tanzania, Kenya and Uganda. It employs the co-integration and error-correction modeling framework to analyze the effects of erratic and inadequate revenue generation on physical and human capital development in Tanzania, Kenya, and Uganda using time-series data over the period 1970-2005.The results unambiguously demonstrate that changes in tax revenue have strong impacts on physical and human capital development spending in the three countries. The policy lessons that can be drawn from the findings of this paper is that the three countries should strike a balance of the composition of government expenditure; reprioritize public expenditure into productive spending and strive to generate sufficient tax revenue to finance budget expenditures on physical and human capital development in order to reduce poverty and promote long-run economic development.
Key words: Tax Revenue Generation Capacity; Physical infrastructure; Human Capital, Tanzania, Kenya and Uganda