The Effects of Fiscal Policy on Forest Cover Conditions and Dynamics: Evidence from Tanzania

Forest cover conditions in Tanzania remain predominantly negative, with significant implications for biodiversity, rural livelihoods, and climate stability. Despite national forest management policies, traceability systems, afforestation programs, REDD+ initiatives, and the National Carbon Monitoring Centre, forest conditions continue to deteriorate. Naturally regenerating forests declined to 42.8 million hectares in 2025, while annual deforestation rose to approximately 469 thousand hectares in the post-2015 period. Fire disturbances remain evident, with around 4014 hectares burned in 2025, and forest growing stock declined to 3143 million m3. Existing studies largely attribute these trends to agricultural expansion, population pressure, and charcoal dependence, while the role of fiscal policy has received limited empirical attention. This study addresses this gap by examining the relationship between fiscal policy and forest cover conditions in Tanzania from 2001 to 2024 using a VAR framework. The results indicate that increases in government development expenditure are associated with short-run improvements in forest cover conditions, suggesting that public investment can contribute to positive environmental outcomes, while balanced budget condition is associated with more stable improvements. These findings point to strengthened domestic revenue systems, greater fiscal discipline, and closer alignment of public expenditure with environmental objectives as relevant areas for further policy attention.