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# **1 Introduction**

Following a period of economic stagnation in the early 1990s, Tanzania has seen sustained gains in per capita output since 1995. The 2000/01 Household Budget Survey (HBS) offers the opportunity to assess how economic growth at the national level has impacted household consumption and poverty levels since the 1991/92 HBS. At the national level, the two surveys show only a small and statistically insignificant decline in the headcount rate. This fact, combined with the relatively rapid growth of recent years, has raised concerns that recent economic growth may not be substantially reducing poverty.

The survey data, however, provides only two snapshots in time and fails to represent the full evolution of poverty over the course of the intervening nine years. The primary purpose of this paper is to assess the likely trajectory of poverty rates over the full span of the period between the surveys. This is done by applying macroeconomic growth data to the micro-level household survey data. Changes in consumption are simulated year-by-year using unit-record survey data, under varying assumptions for growth rates and inequality changes. The growth data is drawn from national accounts statistics. The analysis follows the procedure outlined in Datt and Walker (2002) and Datt et al. (2003).

The paper also implements an extension to the Datt and Walker method. The original procedure was designed to project poverty rates forward from a single survey. When the task is to estimate the trajectory of poverty rates during the period between two surveys, as with Tanzania for the 1990s, an alternative method can be used. The method involves scaling national accounts growth rates for multiple parts of the distribution. Unlike the Datt and Walker method, this approach guarantees that the simulated distribution will closely match the distribution in the final survey year.

The paper is structured as follows. Section 2 describes the data sources, key findings from the Tanzania Household Budget Survey report, and issues surrounding the data. Section 3 presents some poverty and growth diagnostics: a decomposition of growth and inequality, a sectoral decomposition of poverty changes, and growth incidence curves. Section 4 outlines the simulation methodology—both the Datt and Walker method and the alternative approach. Section 5 presents the simulation analysis. The section investigates different assumptions regarding the data and the method of simulation. Our preferred scenario is presented in Section 5.7 after which Section 5.8 considers the main assumption underlying the Datt-Walker approach: that economic growth translates into higher consumption for all population groups. This is done by investigating whether since 1994, and for given GDP growth, inequality changed rather than that poverty dropped. Section 5.9 presents MDG projections, and Section 6 concludes.

# **2 Data Sources**

# **2.1 Household Budget Surveys**

The primary sources of poverty data for Tanzania are the Household Budget Surveys conducted in 1991/92 and 2000/01. Basic poverty statistics calculated from the survey data are shown in Table 1. In Tanzania<sup>1</sup> as a whole, in rural areas, and in urban areas other than the capital, the household survey data shows a statistically insignificant growth in consumption per adult equivalent of 6.4%, with small and insignificant drops in the fraction living in poverty, and no

> 1 When we refer in this paper to Tanzania as a whole we only refer to mainland Tanzania, i.e. the United Republic of Tanzania, excluding Zanzibar.