Evaluation of Revenue Effect from Tax Components and Economic Growth in Nigeria

Abstract

This research empirically examined the relationship between tax revenue and economic
growth in Nigeria for the period 1994-2021. Ex-post facto research design was adopted in the
investigation. Multiple regression analysis was employed, in which Auto-Regressive
Distributed Lag (ARDL) model as the method of analysis was utilized in the research. The
ARDL model evaluates long-run and short-run interactions among the specified variables.
The unit root tests conducted using Augmented Dickey-Fuller (ADF) revealed that the time
series variables used were stationary at level and the first difference, but none of the variables
was stationary at the second difference. The ARDL – Bound test analysis revealed the
existence of long-run equilibrium relationship between tax revenue and economic growth in
Nigeria within the period of the study. The coefficient of error correction mechanism was
statistically significant and also negatively signed. The results equally showed that both
company income tax and value added tax were statistically significant and positively related
to economic growth in Nigeria in both shot-run and long-run periods; whereas personal
income tax was statistically insignificant and positively related to economic growth in
Nigeria in both short-run and long-run. Based on the findings, the study therefore
recommended tax authorities responsible for tax administration should upgrade the tax
database to capture all potential tax-payers in order to broaden tax income.