No abstract

Government continuously operates with revenues below expenditures and taxation is increasingly becoming a sensitive political and economic tool to be relied upon as an instrument for revenue generation and economic growth. This study seeks to examine the impact of tax policy and donor inflows on economic growth in Malawi from 1970 to 2010 using data envelope analysis (DEA) and transcendental logarithm (Translog). In doing the Translog, the study employed the Engle and Yoo three step estimation process. Data analyzed shows that consumption taxes have on average contributed 60.0% to total tax revenue while income taxes take up 40.0%. Tax burden has ranged from 11.0% in the 1970s to around 16.0% in 2010. Results of the study show that a 1.0% decrease in tax burden can raise economic growth by 0.8% in Malawi while a similar reduction in collection of taxes through expenditure can raise growth by 0.6%. Another finding is that economic growth rises by 0.3% for a 10.0% rise in foreign grants. The study therefore finds that reduction in tax burden is more potent in influencing economic growth than fine tuning the proportion in which income and consumption taxes are collected in Malawi. Furthermore, a complete reversal in donor funding will reduce economic growth by 3.0%.

This paper analyses the effectiveness of foreign exchange market interventions by the Reserve Bank of Malawi (RBM). We use a GARCH (1, 1) model to simultaneously estimate the effect of intervention on the mean and volatility of the Malawi kwacha. Results from the GARCH model indicate that net sales of US dollars by the RBM depreciate, rather than appreciate, the kwacha. Empirically, this implies the RBM 'leans against the wind', that is, the RBM intervenes to reduce, but not reverse, exchange rate depreciation. On the other hand, results for the GARCH model for the post-2003 period indicate the RBM intervention in the market stabilizes the kwacha. In general, results for the entire study period show that the RBM interventions have been associated with increased exchange rate volatility, with the only exception being the post-2003 period. The implication of this finding is that intervention can only have a temporary influence on the exchange rate.

No abstract

No abstract