Assessing the Effects of Fiscal Policy on Corporate Financing Decisions.

Abstract

This study examines the effect of fiscal policy on business funding decisions among the firms in Ilala Municipality, Dar es Salaam, based on heightened interest in the manner in which fiscal instruments influence the structuring of the capital plans of firms. While fiscal policy is a significant economic tool, there is limited empirical evidence in Tanzania regarding the functioning of tax administration systems, fiscal incentives, and interest rate policies on funding decisions among corporate companies. The general study objective was to measure fiscal policy influence on firms' financing choices, with particular objectives focused on measuring the influence of tax administration mechanisms, fiscal incentives, and interest rates policy. Cross-sectional design and quantitative approach were utilized, and data were gathered using structured questionnaires from 181 respondents who were selected by simple random sampling from a target population of 560 corporate firms. Statistical analyses were conducted with SPSS software version 26, from descriptive statistics, correlation, to multiple regression. The results showed that tax administration systems (β = 0.252, p < 0.001), fiscal incentives (β = 0.955, p < 0.001), and interest rate policies (β = 0.272, p < 0.001) significantly impacted corporate financing decisions, including the debt-equity decision. The study concludes that fiscally prudent policies play a major role in the financial planning of firms, access to cheap funding, and sustainable growth. Policymakers are encouraged to make tax regimes simpler and fiscally more rewarding so that funding challenges can be reduced to a minimum. For business firms, fiscal planning must be aligned with financial trends, and researchers must investigate longitudinal and mixed-method designs in order to make richer inferences about the impact of fiscal policy.