Effect of Taxes on Investment Growth in Rwanda

Investment is considered as one of the important pillars for attaining durable economic growth. There are many and different studies conducted in Rwanda on investment, but no any of them that has assessed the effect of taxes as a fiscal policy tool on investment growth in Rwanda to thoroughly disaggregate certain fiscal policy variables. The effects of fiscal policy on investment growth have not been given much attention given that Rwanda has comprehensively used taxes among others as a fiscal policy for its promotion. The general objective of the study was to analyze the effect of fiscal policy (taxes) on investment growth in Rwanda. This study used both descriptive and analytical research design. Ordinary Least Square (OLS) method was employed in analyzing time series data captured over the period under this study. Granger casualty test was used to test causality relationship between taxes as a fiscal policy tool and investment growth. The study used annual time series data spanning from 2000 to 2017. The residual is stationary, t-statistic (-4.927634) is less than critical value (-1.961507) and the probability (0.0001) is less than 5 % and the Durbin- Watson Stat is greater than R2 which is (1.131953) greater than (0.953127). Based on the results, the researcher established that R-squared is significant at 95 %. This means that taxes as a fiscal policy tool contributed to the investment growth of Rwanda. The results show that independent variable has a positive impact on investment growth in Rwanda, where coefficient of variables have positive sign, (5.265211) Tax. This became evident that taxes as a fiscal policy tool has contributed positively on investment growth in Rwanda from 2000-2017. The development of taxes especially tax policy as a sub-set of a fiscal policy is important in sustaining long-term investment growth. The co-integration test illustrates that the variables were co-integrated and implying that a long run relationship exists on the investment gr