Dissertation (MA Economics)Education expenditure is trusted to be one of the key priorities towards economic growth and welfare improvement. The Tanzanian government believes that the improvement in economic growth and living standard of the people can be achieved through increase in public education expenditure. However, despite the efforts of improving the quality and access to education in Tanzania, there is still no clear understanding of quantitative effects of education expenditure on economic growth and welfare of the people. Thus, the present study used a dynamic Computable General Equilibrium analysis to determine the effect of the increase in public education expenditure on economic growth and welfare. To enhance in-depth analysis of the impacts of education expenditure, the education sector was disaggregated into three groups; primary education, secondary education and higher education. Specifically, the study aimed at assessing the effect of the increase in public education expenditure by 3 percent on economic growth as well as assessing the effect of the increase in public education expenditure by 3 percent on household’s welfare. The findings of this study show that the increase in the education expenditure is generally beneficial for the Tanzania economy. That is, a 3 percent increase in the public education expenditure result into a change in real Gross Domestic Product (GDP) by 0.09 percent in the first year and 0.80 percent in the ninth year. The household’s income and household’s consumption were also increased along with the increase in aggregate outputs especially to higher educated households resulting in an increase of welfare. Therefore, the increase in public education expenditure turned out to be the important policy measure as it is positively affects economic growth and welfare of the people. Noteworthy, the government should allocate more resources to higher education level because it has higher return to households compared to lower education levels.