Forest Tax Revenue, Fees, and GDP Growth in Tanzania: An Empirical Investigation of Their Relationship

Abstract

The forestry sector contributes to Tanzania’s economy through employment creation, income generation, provision of forest products, and government revenue collection through taxes, royalties, and fees. However, despite the importance of forestry resources, limited empirical evidence exists on the long-run relationship between forest tax revenue and economic growth in Tanzania. This study examines the relationship between forest tax revenue and Gross Domestic Product (GDP) growth in Tanzania using quarterly data covering the period from 2012 to 2020. The study applies time-series econometric techniques, including Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests, Johansen cointegration analysis, Granger causality testing, Vector Error Correction Model (VECM), and impulse response analysis to investigate both short-run dynamics and long-run relationships between forest tax revenue and GDP. The findings indicate that both forest tax revenue and GDP are non-stationary at levels but become stationary after first differencing, confirming that both variables are integrated of order one. The Johansen cointegration test provides evidence of a long-run equilibrium relationship between forest tax revenue and GDP, suggesting that the two variables move together over time despite short-run fluctuations. Granger causality results reveal a bidirectional relationship between forest tax revenue and GDP growth, indicating that forest tax revenue contains useful information for predicting GDP growth and that economic growth also influences future forest revenue generation. The impulse response analysis further demonstrates that shocks to forest tax revenue and GDP generate dynamic adjustments between the two variables. The study concludes that forest taxation represents an important fiscal linkage between Tanzania’s forestry sector and macroeconomic performance. Although the current contribution of forestry revenue to national income remains relatively limited compared with other sectors, improving forest tax administration, strengthening formal forestry enterprises, and promoting sustainable forest utilization could enhance the sector’s contribution to domestic revenue mobilization and economic growth. The findings provide policy insights for designing forest fiscal strategies that support both sustainable resource management and Tanzania’s long-term economic development.