Fiscal Incidence in Tanzania: Commitment to Equity

One of the functions of government is to redistribute resources, especially to the most disadvantaged members of society. While there is considerable disagreement over both the extent and the means to effect such redistribution, most people agree that society is better off if inequality and poverty can be reduced, and all governments do, in fact, redistribute income with their tax and expenditure policies, though not always progressively. The purpose of this paper is to examine the extent to which the government of Tanzania does so. In particular, the paper addresses three general questions: How much redistribution and income poverty reduction is being accomplished through social spending, subsidies and taxes? How progressive are revenue collection, subsidies, and government social spending? and Within the limits of fiscal prudence, what could be done to increase redistribution and poverty reduction through changes in taxation and spending? Such information is useful for policy makers in two broad ways. First, the government of Tanzania commits itself to reducing poverty and inequality and increasingly adopts policies explicitly intended to alter the distribution of income. Examples include: MKUKUTA, a national level strategy aimed at reducing poverty and inequality through improved access to health, education, water and sanitation services; a Productive Social Safety Net Program which includes a conditional cash transfer program; free food provided under the National Strategic Reserve Fund (NSRF); free school books and uniforms for some disadvantaged children; and distribution of free bed nets. This study will give information on the effectiveness of these and other policies at redistributing income and also evaluate the distributional consequences of several proposed policy changes.