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Abstract
This study investigates the linear and non-linear effects of government expenditure on domestic investment in Tanzania using time-series data from 1990 to 2022. The analysis employs the Autoregressive Distributed Lag (ARDL) and Bound test approach. The findings confirm the existence of a stable long-run cointegration relationship among the variables under both linear and non-linear specifications. The long-run linear results indicate that government expenditure and domestic savings significantly promote domestic investment, while subsidies, inflation, and money supply negatively affect investment in the long-run. Importantly, the non-linear quadratic model reveals an inverted U-shaped relationship between government expenditure and domestic investment. In short run, however, subsidies, inflation and money supply show positive effects on domestic investment. Based on these findings, the study recommends that the Government of Tanzania enhance the efficiency pf public expenditure by prioritizing productive infrastructure investment, reforming inefficient subsidy systems, maintaining monetary stability to control inflation, and strengthening policies that encourages domestic savings mobilization through coordinated fiscal and monetary measures.