Fiscal Policy Effects on Private Investment In Zimbabwe

Abstract

The paper examined the effects of fiscal policy on private investment in Zimbabwe. In particular the paper investigated the components of fiscal policy that could have effected growth in private investment. By estimating a modified accelerator investment model to establish the relationship between private investment and fiscal policy variables. Secondary data, time series, was collected from World Bank, IMF and RBZ data banks. The Johansen Cointegration tests was employed to analyze data for the existence of a long-run relationship between private investment and fiscal policy variables. The Vector Error Correction Model (VECM) was performed to determine the economic relationship between the variables. The findings revealed that value added tax has a positive effect on private investment. Budget deficit, development government expenditure and excise duty and import tax proved to have an adverse relationship with private investment. The study recommended expansion of government spending on capital, reduction of budget deficits and encouragement of public private partnerships.